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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1998.
AUTOIMMUNE INC.
(Exact name of registrant as specified in its charter)
Delaware 13-348-9062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
128 Spring Street, Lexington, MA 02421
(Address of principal executive (Zip Code)
offices)
(781) 860-0710
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which
registered.
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
On March 5, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $24,755,640.93. As of March 5, 1999,
there were outstanding 16,555,949 shares of the registrant's Common Stock,
$0.01 par value.
Documents Incorporated by Reference
Portions of the Company's definitive Proxy Statement for its annual meeting
of shareholders which the Company intends to file within 120 days after the
end of the Company's fiscal year ended December 31, 1998 are incorporated by
reference into Part III hereof as provided therein.
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PART I
Item 1. Business.
Overview
AutoImmune Inc. (the "Company" or "AutoImmune") is a biopharmaceutical
company developing a new class of orally administered pharmaceutical products
for the treatment of autoimmune and other cell-mediated inflammatory diseases
and conditions. The Company is currently conducting clinical trials for the
following products: Colloral(R), for the treatment of rheumatoid arthritis,
and AI 502, for the treatment of chronic transplant rejection. A third
product, AI 401, for the treatment of Type 1 diabetes, is in Phase II clinical
trials supported by Eli Lilly and Company ("Lilly") and the National
Institutes of Health ("NIH"). The Company believes, based on preclinical and
clinical data, that its proprietary approach to therapy can induce tissue-
specific immunosuppression without toxicity or significant side effects.
Additional clinical and commercial advantages of this approach include the
ability to administer products orally (the preferred method of treating
chronic diseases) and the potential for application to a variety of
inflammatory diseases and conditions.
All of the Company's products are based upon the principles of oral
tolerance. Oral tolerance utilizes natural immune system mechanisms associated
with the gut (the small intestine). These mechanisms allow the body to accept
orally ingested proteins by suppressing the immune response that would
otherwise arise against a foreign substance. This suppression can be directed
toward a tissue under attack by the body's own immune system, which occurs in
an autoimmune disease, through appropriate selection and dosing of the protein
in an orally delivered product.
AutoImmune believes it is the leading company developing pharmaceutical
products based upon the principles of oral tolerance. The status of each of
AutoImmune's principal products is as follows:
Colloral(R)--To date, AutoImmune has completed eight human clinical trials
of Colloral in over 1,200 patients to investigate its use in treating
rheumatoid arthritis. The Company met with the United States Food and Drug
Administration ("FDA") in November 1997 to review data from its Phase II
program. At the conclusion of that meeting the FDA supported the Company's
plan for Phase III. A Phase III trial is currently underway and is expected to
be completed this summer.
AI 401--In December 1994, the Company entered into a collaborative agreement
with Lilly under which Lilly has provided support for clinical testing of the
Company's autoimmune-mediated (Type 1) diabetes product. This agreement was
terminated in the first quarter of 1999 as a result of Lilly's failure to make
a required milestone payment. Lilly is contractually obligated to complete the
trials now underway and to provide the Company with full access to the data
therefrom. Lilly sponsored investigators have completed enrollment in three
different Phase II clinical trials to demonstrate human proof of principle for
AI 401 in patients newly diagnosed with Type 1 diabetes. The results of these
studies are expected to be available within the next 18 months. In addition,
Lilly is providing AI 401 for the Diabetes Prevention Trial (DPT-1) being
conducted by the NIH. The oral arm of this trial, which is expected to enroll
490 patients, is designed to determine whether AI 401 can delay or prevent the
clinical onset of Type 1 diabetes. Patient enrollment in the oral arm of DPT-1
is approximately 40% complete.
AI 502--In January 1997, the Company initiated a clinical trial of
tolerizing peptides for the prevention of organ transplant rejection. The open
label study, which is being conducted in patients at The Brigham and Women's
Hospital, is designed to assess the safety and immunological effects of oral
peptides in laboratory measures of chronic transplant rejection. Enrollment
continued in 1998 and results are expected to be available in late 1999.
AI 301--The Company is developing AI 301, a recombinant human protein, for
the treatment of uveitis, an inflammatory disease of the eye. Using its first
generation product based on animal protein, AI 300, the Company conducted a
Phase I/II clinical trial in 45 patients in conjunction with the National Eye
Institute of the NIH. Results of the trial were judged by the Company to be
encouraging and were published in the American Journal of Ophthalmology in May
of 1997. The Company expects that future clinical trials for uveitis will use
AI 301,
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due to the expected lower cost of manufacturing this recombinant product
compared to product based on animal protein.
Products for Multiple Sclerosis and Myasthenia Gravis--The Company has
entered into an exclusive agreement with Teva Pharmaceutical Industries, Ltd.
("Teva"). This agreement covers the development by Teva of an oral formulation
of Copaxone(R) (glatiramer acetate), Teva's currently available injectable
drug for multiple sclerosis. The new formulation would use the Company's
proprietary technology for oral tolerance and is expected to be in efficacy
trials before the end of 1999. The agreement also covers an orally delivered
formulation of a product to treat myasthenia gravis developed by Teva. It is
anticipated that the myasthenia gravis product will enter Phase I clinical
trials before the end of 1999.
Autoimmune diseases represent a major worldwide health care problem in terms
of the number of people affected. The Company believes that each of these
products under development offers the potential for a therapeutic
breakthrough.
The Company was incorporated in Delaware in September 1988 as AutoImmune
Technologies, Inc. The Company changed its name to AutoImmune Inc. in July
1991. The executive offices of AutoImmune are located at 128 Spring Street,
Lexington, Massachusetts 02421, and its telephone number is (781) 860-0710.
Strategy
The Company's objective is to become a leading provider of therapeutic
products to treat immune system disorders. The key elements of the Company's
strategy include the following:
Focusing on Colloral. The Company is concentrating a significant portion of
its resources on its most advanced product, Colloral, for the treatment of
rheumatoid arthritis. More than six million people worldwide suffer from
rheumatoid arthritis and current therapies have significant limitations. The
Company has retained all rights to Colloral. AutoImmune currently plans to
evaluate all of its options for this product, including independently
developing and marketing or seeking to enter into licensing arrangements,
exclusive marketing agreements in specific foreign markets or joint ventures
with established pharmaceutical companies.
Leveraging the Company's Technology Platform. The Company believes its
technology is applicable to a variety of autoimmune and other cell-mediated
diseases and conditions. In addition to Colloral, the Company has several
other products in various stages of development, including products to treat
Type 1 diabetes, chronic transplant rejection and uveitis. The Company has,
and plans to continue to seek, licensing arrangements, joint ventures or other
collaborative agreements to assist in financing the development and
commercialization of one or more of these products. This strategy resulted in
the Company's collaboration with Lilly for clinical testing of its products to
treat autoimmune-mediated diabetes. More recently, it resulted in the
Company's agreement with Teva relating to the development of an oral
formulation of Copaxone and an orally delivered formulation of Teva's product
to treat myasthenia gravis.
The Company continues to develop the technology underlying oral tolerance
therapy through research conducted primarily at The Brigham and Women's
Hospital, a teaching hospital affiliated with Harvard Medical School. This
research is designed to further the Company's understanding of the mechanisms
of oral tolerance with the goals of increasing the effectiveness of the
Company's products and exploring new therapeutic applications for this
technology.
Protecting the Company's Competitive Position. From its inception, the
Company has sought to establish a strong proprietary position. As of December
31, 1998, the Company had pending 34 original and continuation-in-part United
States patent applications and numerous foreign counterparts. The Company has
received or has exclusive rights to 49 U.S. and foreign patents, including
five U.S. patents covering the use of oral Type I, II, or III collagen to
treat rheumatoid arthritis in humans; five U.S. patents covering the treatment
of cell-mediated autoimmune disease by nasal or by inhalation administration
of autoantigens, and in particular covering treatment
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of multiple sclerosis or rheumatoid arthritis using nasal or by inhalation
administration of compositions containing myelin basic protein or collagen,
respectively, or active fragments thereof; three U.S. patents covering
suppression of allograft rejection by oral administration of a major
histocompatibility complex Class II antigen or an active fragment thereof;
three U.S. patents covering the treatment, or prevention of the onset of, Type
1 diabetes by oral or nasal administration of a composition containing insulin
or a fragment of insulin; one U.S. patent covering treatment of multiple
sclerosis by oral administration of bovine myelin; and one U.S. patent
covering a method for preparing Type II collagen. The European and Japanese
Patent Offices have each granted a patent to the Company covering the use of
compositions containing autoantigens to treat a group of human autoimmune
diseases, but oppositions (proceedings challenging their validity) have been
filed against these patents by a third party. The Japanese Patent Office has
issued a decision adverse to the patent, but the Company has filed a response,
and that decision is under review at present. A number of the pending U.S.
patent applications which the Company owns or to which it has exclusive rights
have been allowed and are expected to issue in the near future.
In addition, the Company expects that Orphan Drug status may provide
increased proprietary protection for certain of its products in the United
States. The Company has received Orphan Drug status for Colloral for the
treatment of juvenile rheumatoid arthritis. The Company also anticipates that
the FDA will classify its products as "biologics." If the Company's products
are so classified, there is currently no provision for rapid approval of
generic competitors after the expiration of any proprietary protection the
Company receives.
Minimizing Costly Infrastructure and Capital Investment. From its inception,
the Company has sought to conserve its financial resources. The Company's
early research was conducted at The Brigham and Women's Hospital, and the
Company did not begin to hire employees in significant numbers until 1993. The
Company has made extensive use of external resources, such as clinical
research organizations and consultants. The Company believes it will be able
to minimize costly infrastructure by continuing the use of external resources
where appropriate.
Autoimmune Diseases
The human immune system is the major biological defense mechanism
responsible for recognizing and fighting disease. The immune system
distinguishes foreign substances (antigens) from the body's tissue and rids
the body of a wide variety of disease-causing antigens such as bacteria and
viruses. T cells, which circulate in the blood, are a major component of this
system. There are several types of T cells, which play a critical role in
recognizing antigens, carrying out the immune response, and regulating the
resulting chain of events. These include "helper" T cells, which release
factors to amplify the immune response, "killer" T cells, which attack and
destroy other cells displaying the targeted antigen, and "regulatory" T cells,
which release factors to down-regulate or suppress the immune response and
keep it in control.
Autoimmune diseases are generally believed to be a result of an
inappropriate response of the immune system. In many autoimmune diseases, the
helper and killer T cells go awry and attack the body's healthy tissues. T
cells which act in this manner are called autoreactive T cells. These T cells
appear to target the antigenic substances present in specific tissues
(autoantigens). The antigenic substances differ depending upon the disease and
may change over the course of a disease. In some diseases, the antigenic
substances have not been characterized, while in others a number of substances
have been found, but the particular role of each has not been identified.
Autoimmune diseases, which may be crippling or fatal, can strike virtually
any tissue or organ. The particular disease that occurs depends upon which
healthy tissue is attacked. For example, if the tissue attacked is the brain,
multiple sclerosis results; if synovial tissue in joints is the target,
rheumatoid arthritis results. Type 1 diabetes occurs when certain pancreatic
cells are the target, and uveitis occurs when cells of the uvea, the middle,
vascular layer in the eye, are attacked.
There is currently no method known for curing autoimmune diseases. They are
chronic and require lifelong treatment. Treatments tend to fall into two major
categories. The first category involves compounds for palliative
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treatment, such as anti-inflammatory agents and pain killers for rheumatoid
arthritis or insulin for diabetics. In some forms of the diseases, there is no
acceptable method of treating even the symptoms. The second category involves
the administration of non-specific immunosuppressants, which indiscriminately
shut down multiple parts of the immune system. These immunosuppressants
usually have serious toxicity and side effect problems with long-term use.
While there are numerous cell-mediated autoimmune diseases, the Company at
present is developing products for three: rheumatoid arthritis, Type 1
diabetes, and uveitis (or uveoretinitis). Rheumatoid arthritis is a chronic
disease in which the body's immune system attacks synovial tissue in joints,
resulting in a progressive, painful inflammation of the joints, along with
crippling deformation of the hands, feet, hips, knees and shoulders. In
advanced phases of the disease, symptoms include severe pain, body
disfiguration and loss of mobility. The autoimmune form of diabetes (Type I,
also known as juvenile or insulin-dependent diabetes) is the result of the
body's immune system destroying the insulin-producing islet cells in the
pancreas. Although the administration of insulin controls the metabolic
abnormalities of the disease, it does not always prevent major debilitating
effects, which can include neural degeneration, chronic pain,
arteriosclerosis, loss of limbs due to peripheral vascular disease, blindness
and kidney failure. In its most severe form, diabetes can result in death. The
autoimmune form of uveitis is a chronic, degenerative eye disease, resulting
in inflammation, discoloration and ultimately blindness.
In addition, AutoImmune is developing a product for the treatment of chronic
transplant rejection which, while not an autoimmune disease, involves similar
mechanisms of action. Due to the similarity, the Company believes that its
oral tolerance approach may provide an effective therapy for this clinical
condition.
The Company has directed its efforts in these areas because each of these
diseases and conditions is mediated by the T cells in the immune system, and
thus is well suited to AutoImmune's oral tolerance approach. No completely
satisfactory treatment currently exists for any of these conditions.
The Company's Technology
AutoImmune's products are based upon the principles of oral tolerance. Oral
tolerance utilizes the natural immune system mechanisms associated with the
gut (the small intestine). These mechanisms allow the body to accept
("tolerate") orally ingested proteins (antigens) absorbed through the
intestine without stimulating an immune response that would otherwise arise
against a foreign substance. In a series of extensive research studies
directed by Dr. Howard Weiner, who is one of the Company's principal
scientific advisors, it was shown that, when properly activated, these
mechanisms can be used to treat autoimmune disorders by selectively
suppressing the immune system. This discovery forms the basis of the Company's
products and patent claims. See "Patents and Proprietary Rights."
The Company's method uses therapeutic substances--antigenic proteins or
derivatives thereof found in the organs attacked by each disease--which are
delivered orally and disassembled in the gut by the normal digestive
processes. Specific fragments of these substances (peptides) attach to
antigen-presenting cells on the surface of the gut. The cells involved are
those associated with Peyer's Patches, which are groupings of immune system
cells surrounding the gut that have been reported to induce immune tolerance.
This triggers the immune system to initiate a chain of events that results in
the creation of regulatory T cells that migrate through the blood and lymph
system to suppress or down-regulate the immune response at the targeted organ,
thereby mitigating the disease. This suppression can be directed toward the
tissue under attack in an autoimmune disease by appropriate selection and
dosing of the protein in an orally-delivered product.
AutoImmune has completed a wide range of human, animal and in vitro tests
relating to the oral administration of its products in a variety of disease
indications. The Company believes these experiments have demonstrated that
selective immune system tolerance can be induced by oral administration of
antigens, suppressing undesirable immune system attacks against healthy tissue
without suppressing the entire immune system.
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AutoImmune's research has indicated that identification of the precise
autoantigen for a disease may not be necessary to develop an effective
treatment based on oral tolerance. Research has shown that oral tolerance
induced by one organ-specific protein is capable of suppressing autoreactive T
cells that are attacking a different protein in the same organ. The Company
refers to this phenomenon as "bystander suppression," and has filed patents to
protect its rights to this discovery. In particular, bystander suppression
allows an oral tolerance treatment to be effective even if the autoantigen is
not precisely identified or changes during the course of a disease (an effect
known as "determinant spreading").
In contrast to existing treatments, which are limited to treating only the
symptoms of autoimmune disease or which run the risks and side effects of
shutting down the entire immune system, the Company's products are intended to
interrupt the disease process and be specific to each disease. Moreover,
because of the apparent freedom from significant side effects enjoyed by
AutoImmune's products, the Company believes they may be prescribed earlier in
the disease process than is now customary, and thus may allow patients to
avoid most or all of the debilitating effects of autoimmune diseases. The
Company believes its approach of developing products to induce the activation
of regulatory T cells in order to suppress disease distinguishes it from most
others currently conducting autoimmune disease research.
The Company's approach offers a number of important clinical and commercial
advantages:
Adverse Reactions Unlikely. The Company believes that since the therapeutic
substances it is developing are protein-based products taken in small
quantities, are digested like normal foodstuffs and stimulate natural
functions, they are unlikely to cause adverse reactions. AutoImmune's human
studies to date have shown a lack of both toxicity and significant side
effects, which the Company believes may expedite the regulatory process.
Tissue-Specific Immunosuppression. The Company's oral tolerance technique
utilizes the immune system itself to generate natural immunosuppression in the
specific tissue(s) attacked by a disease. It does not down-regulate the entire
immune system.
Oral Delivery. AutoImmune's products are administered orally, the preferred
method of treating chronic diseases. Other forms of immunotherapy which are
being marketed or are known by the Company to be in development by competitors
are likely to require chronic intravenous, sub-cutaneous or intra-muscular
administration.
Broad Application. The Company believes that, in addition to the diseases
and conditions on which it has been working to date, its oral tolerance
approach potentially could be applied to the treatment of a variety of other
inflammatory diseases and other clinical conditions, including psoriasis,
Alzheimer's disease, and atherosclerosis.
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Principal Products in Development
AutoImmune has products in various stages of development for treating
rheumatoid arthritis, Type 1 diabetes, chronic transplant rejection and
uveitis. The chart set forth below describes the stage of development of each
of the Company's principal products.
PRINCIPAL PRODUCTS IN DEVELOPMENT
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Product Disease/Condition Development Status
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Colloral(R) Rheumatoid Phase III trial enrollment completed in the
Arthritis first quarter of 1999; results expected in the
third quarter of 1999
AI 401 Type 1 diabetes Phase II trials in progress
AI 502 Transplant
Rejection Phase I/II trial in progress
AI 301 Uveitis Research
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Rheumatoid Arthritis. Colloral, AutoImmune's proprietary oral formulation of
Type II collagen, is currently in a Phase III human clinical trial. This 772
patient study is designed as the final pivotal trial for regulatory approval.
More than 1,200 patients have been involved in the five Phase II Colloral
trials completed to date. Integrated data analysis from these five trials
showed that Colloral is significantly more efficacious than placebo, the
optimum dose is 60 micrograms, and the safety profile is unsurpassed. The
Company expects to have results from the Phase III trial in late summer of
1999.
Drugs for rheumatoid arthritis are given chronically and, as a result, long-
term safety data are required for approval of all new drugs. AutoImmune has
begun to generate long-term safety data on Colloral through open label
continuation trials with patients who have participated in the development
program. As of December 31, 1998, more than 1,300 patient years of safety data
have been collected. Some patients have received Colloral for more than four
years.
Colloral is also being developed for juvenile rheumatoid arthritis ("JRA").
The results from a 10 patient pilot trial for this indication were published
in the April 1996 issue of Arthritis and Rheumatism. AutoImmune has received
Orphan Drug designation for Colloral for the treatment of JRA.
It is estimated that 1% of the worldwide population suffers from rheumatoid
arthritis. In the United States, there are 2.1 million patients with
rheumatoid arthritis, including more than 70,000 patients with JRA. There is
no known cure, but several approaches are used in an attempt to alleviate two
major symptoms of the disorder, pain and inflammation. A number of pain
relievers are widely used, but most have undesirable side effects. Similarly,
a wide variety of anti-inflammatory agents, ranging from aspirin to NSAIDs,
are used with varying degrees of success. The NSAIDs used to alleviate pain
and inflammation have undesirable gastrointestinal side effects that limit
their use. None of the available NSAIDs work with consistent efficacy on all
types of patients. Several companies are working on a new class of NSAIDs
described as COX-2 inhibitors. These products, which began to enter the market
in 1999, may alleviate some of the gastrointestinal side effects currently
seen with traditional NSAIDS. Broad immunosuppressants are also used to treat
rheumatoid arthritis but toxicity limits their use. A new product in this
category is leflunomide, which can be characterized as methotrexate-like, but
with an additional indication for slowing disease progression. Additionally,
there are two biologic products, one of which, Enbrel, was approved in 1998.
The other product, Remicade, is awaiting approval by the FDA. Both products,
which are injectables, are anti-TNF (tumor necrosis factor) inhibitors.
Type 1 Diabetes. In December 1994, the Company entered into a collaborative
agreement with Lilly under which Lilly provided support for clinical testing
of the Company's autoimmune-mediated (Type 1) diabetes product. This agreement
was terminated in the first quarter of 1999 as a result of Lilly's failure to
make a required milestone payment. Lilly is obligated to complete the trials
now underway and to provide the Company with full access to the data
therefrom, including the right to use such data for any purpose. Lilly
sponsored investigators have completed enrollment in three different Phase II
clinical trials to demonstrate human proof of principle for AI 401. The U.S.
study is a one-year, double-blind, placebo-controlled trial with 200+
patients,
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designed to measure immunological changes, preservation of pancreatic function
and time to insulin dependence. The second Phase II trial involves
approximately 150 patients and is being conducted in France. The third trial
is in Italy with approximately 80 patients. The results of these trials are
expected to be available within the next 18 months. In addition, Lilly is
providing AI 401 for the Diabetes Prevention Trial (DPT-1) being conducted by
the NIH. This trial, which began in September 1996 and is expected to enroll
490 patients, is designed to determine whether AI 401 can delay or prevent the
clinical onset of Type 1 diabetes. Enrollment in DPT-1 is approximately 40%
complete.
Approximately 1,000,000 people in the United States suffer from Type 1
diabetes. It is estimated that worldwide there are 180,000 new patients
diagnosed with this disease each year. There is no known way of curing Type 1
diabetes; at best it can be controlled. In addition, because insulin is a
large protein that is not appreciably absorbed through the gut, it must be
administered intravenously or intra-muscularly, rather than orally. The
limitations of the treatment delivery system and the inconsistency of the
therapeutic results have led to major efforts to discover effective new
methods of treatment. The Company believes that the preferred therapeutic
approach would be an oral treatment such as the Company's which could prevent
the onset of the disease (and the related destruction of the insulin-producing
cells) in susceptible populations. Methods to pre-screen persons who are
genetically susceptible to Type 1 diabetes are being developed by others.
AutoImmune expects that individuals who have been diagnosed in the early
stages of Type 1 diabetes, as well as those who may be identified through such
pre-screening, will constitute the primary market for AutoImmune's diabetes
product.
Transplant Rejection. In January 1997, the Company initiated a clinical
trial of tolerizing peptides for the prevention of organ transplant rejection.
The open label study, which is being conducted in patients at The Brigham and
Women's Hospital, is designed to assess the safety and immunological effects
of oral peptides in laboratory measures of chronic transplant rejection. The
results of this trial are expected to be available in late 1999. Prior to the
initiation of AutoImmune's human clinical program in chronic transplant
rejection, the Company conducted several preclinical studies at The Brigham
and Women's Hospital which achieved positive results in the suppression of the
rejection reaction using peptides.
Although not an autoimmune disease, the rejection of a transplanted organ by
its new host is of interest to the Company because this phenomenon involves a
similar cell-mediated mechanism of action. For certain diseases such as end-
stage kidney, heart and liver failure, transplantation of donated organs is
the only means of keeping the patient alive. Two factors, however, have served
to limit the effectiveness of this approach. One factor is lack of donor
organs, while the other is the rejection of the transplanted organ as a
foreign body by the patient's immune system. The availability of the drug
cyclosporin, which suppresses the host's entire immune system, has
significantly changed the nature of organ transplantation in recent years.
While this drug has allowed transplantation to become a much more widespread
clinical procedure, cyclosporin is a powerful, non-specific immunosuppressant
that has severe side effects, especially in the kidneys, and exposes the
patient to attacks from other diseases and opportunistic infections. The
Company believes that its approach offers selective immunosuppression with a
lack of toxicity or significant side effects. Approximately 35,000 organ
transplants are performed annually worldwide.
Uveitis. The Company is developing AI 301, a recombinant human protein, for
the treatment of uveitis, an inflammatory disease of the eye. Using its first
generation, non-recombinant product, AI 300, the Company completed a 45-
patient placebo-controlled Phase I/II clinical trial in January 1996. This
trial was conducted under the sponsorship of the Company pursuant to a
Collaborative Research and Development Agreement ("CRADA") with the National
Eye Institute of the NIH. The results of the Phase I/II trial demonstrate that
treatment with purified bovine S-antigen is safe and may facilitate the
withdrawal of systemic immunosuppressants. The results of the trial were
published in the American Journal of Ophthalmology in May of 1997. The Company
expects to move forward in its program for the treatment of uveitis using AI
301, a recombinant form of S-antigen. The Company believes that a recombinant
product for this disease is likely to be manufactured at a significantly lower
cost than a product based on animal protein.
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Although uveitis can be caused by other factors such as external irritants,
the autoimmune form of the disease is particularly severe. Doctors have used
non-specific immunosuppressants, such as corticosteroids and cyclosporin, on
uveitis patients. Results, however, have not been consistent and serious side
effects may occur.
Multiple Sclerosis and Myasthenia Gravis. In the second quarter of 1997, the
Company ceased independent efforts to develop a product for the treatment of
multiple sclerosis and began evaluating opportunities to collaborate with
third parties in the development of such a product. In this regard, the
Company entered into an exclusive agreement with Teva. The agreement covers
the development by Teva of an oral formulation of Copaxone(R) (glatiramer
acetate), Teva's currently available injectable drug for multiple sclerosis.
This oral formulation would use the Company's proprietary technology for oral
tolerance and is expected to be in efficacy trials before the end of 1999. The
agreement also covers an orally delivered product to treat myasthenia gravis
developed by Teva. It is anticipated that the myasthenia gravis product will
enter Phase I clinical trials before the end of 1999. AutoImmune will receive
up to $20 million in milestone payments upon product approvals, and escalating
royalties on cumulative sales for all products covered by the agreement.
Approximately 350,000 persons in the United States suffer from multiple
sclerosis. Approximately one-third of individuals with multiple sclerosis
stabilize and never reach a severe stage; others have multiple acute attacks
as frequently as two to three times a year. In its most severe form, the
disease is relentlessly progressive and can result in complete disability
within ten years. Since the early 1980s, non-specific immunosuppressants, such
as cyclophosphamide and azothioprine, have been used with occasional success
to slow the progression of this disease in some patients. None of these
treatments is capable of stopping multiple sclerosis attacks or halting the
progression of the disease without exposing patients to potentially serious
side effects. Since 1993, three products have been approved by the FDA for the
treatment of relapsing/remitting multiple sclerosis. All three are indicated
for reduction of the frequency of multiple sclerosis exacerbations (one is
also approved for slowing the progression of disability associated with
sclerosis). Each of these drugs is administered by injection and each has side
effects, including injection site reactions and flu-like symptoms or shortness
of breath.
Approximately 45,000 persons in the United States suffer from myasthenia
gravis, a chronic neuromuscular disease that produces weakness and abnormally
rapid fatigue of voluntary muscles, especially those that control the eyes,
face, tongue and limbs. Patients are currently treated with immunosuppressives
and anticholinesterase compounds.
Additional Products and Research Programs
The Company's additional research and development efforts are focused on two
primary objectives: (i) developing ways to enhance the therapeutic effect of
the Company's existing products by combining its products with other compounds
or drugs; and (ii) expanding the applications of oral tolerance therapy.
There are two basic approaches under study by the Company to enhance the
therapeutic effect of existing products. The first is through the
contemporaneous administration of agents such as beta-interferon, interleukin-
4, or interleukin-10, which have been demonstrated to predispose the immune
system toward the production of regulatory T cells. The second approach is
through the contemporaneous administration of agents such as methotrexate
which can impact the disease process through its effect on autoreactive T
cells. Both methods have been shown in animal studies to increase the
effectiveness of oral tolerance therapy.
In addition to the products it currently is developing, AutoImmune has
several research programs involving possible future products. The Company
believes its oral tolerance approach may lead to treatments for cell-mediated
inflammatory diseases in addition to those it is currently studying. For
example, the Company has conducted research on products to treat other
diseases, including Alzheimer's disease and atherosclerosis.
Manufacturing
All of the Company's products for clinical and commercial use must be
produced under controlled conditions and under current FDA Good Manufacturing
Practices ("GMP"). To ensure compliance with GMP
9
<PAGE>
requirements, the Company will be required to maintain sufficient technical
staff to oversee all production operations, including quality control, quality
assurance, technical support and manufacturing management. To the extent the
Company relies upon contract manufacturing arrangements, the Company will
depend upon third parties to produce and deliver products in accordance with
GMP.
The Company is producing Colloral in bulk form for use in its clinical
trials from a pilot facility it constructed in 1996. The Company is currently
meeting its filling, labeling and packaging requirements for Colloral through
arrangements with third parties. The Company will continue to evaluate whether
to manufacture bulk product and finished dosage forms for all of its products
through contract suppliers, by leasing space in an existing facility or by
establishing its own facility on a product-by-product basis.
Marketing and Sales
In order to market any of its products directly, the Company must develop a
marketing and sales organization. However, the Company may elect to enter into
agreements with established pharmaceutical companies with respect to the
marketing of one or more of its products. Such agreements may be exclusive or
non-exclusive and may provide for marketing rights worldwide or in specific
markets.
Collaborative Research Agreements
During the early stages of its development, the Company chose to operate
through a variety of agreements with medical research institutions.
AutoImmune's agreements with The Brigham and Women's Hospital and other
leading medical research institutions, together with the advantages of the
oral tolerance mechanism, have allowed the Company to conduct pilot human
studies and demonstrate the potential utility of its technique in a number of
diseases at a comparatively early stage of the Company's development.
The Brigham and Women's Hospital. The Brigham and Women's Hospital, Inc.
("BWH"), a teaching hospital affiliated with Harvard Medical School, has been
performing sponsored research for the Company since 1988. The current
agreement extends until June 30, 2000 and is automatically renewed for
successive two-year periods unless one year's prior written notice is given.
The current research budget at BWH provides for expenditures by AutoImmune of
approximately $537,000 during the twelve months ending June 30, 1999. Under
certain circumstances, the Company may reduce its level of expenditures. The
Company will own or have exclusive rights to all inventions, improvements and
discoveries made at BWH and resulting from the research program, subject to
certain rights retained by the U.S. government in any patentable invention
conceived or first reduced to practice using federal funds. The Company will
pay to BWH (i) a royalty on all products sold by the Company that are subject
to a patent covering an invention developed under the research program or as
to which rights were acquired by the Company from BWH, and (ii) a percentage
of any royalties received by AutoImmune with respect to sales of such products
by others. BWH also will receive a percentage of any milestone payments which
the Company is entitled to receive from licensees or other transferees of such
a patent after the first commercial sale of a product covered by a patent. If
the Company defaults in the payment of any amount due to BWH, BWH will have an
option to purchase all technology developed under the research program at a
purchase price equal to the sum of all amounts previously paid by the Company
to BWH.
BWH is a shareholder of the Company. Both of the scientists who made the
discoveries which led to the founding of AutoImmune are affiliated with BWH.
National Eye Institute. The National Eye Institute ("NEI") was party to a
CRADA with AutoImmune and BWH pursuant to which clinical trials of
AutoImmune's uveitis product were conducted. The agreement expired June 30,
1996. The NEI is a co-owner with AutoImmune of a patent application directed
to the use of oral tolerance to treat uveitis. The NEI has granted BWH an
exclusive commercialization license for any and all products or processes
developed pursuant to the CRADA (including the uveitis patent application) in
exchange for one-half of any royalties with respect to uveitis products
collected by BWH pursuant to its agreement with the Company. BWH has in turn
granted the Company an exclusive commercialization license with respect to all
10
<PAGE>
such technology. The Company and NEI are in continuing discussions regarding a
potential collaboration to develop the Company's second generation product for
uveitis, AI 301.
Patents and Proprietary Rights
The establishment of a strong proprietary position is an important element
of AutoImmune's strategy. As of December 31, 1998, the Company had pending 34
original and continuation-in-part United States patent applications and
numerous foreign counterparts. The Company has received or has exclusive
rights to 49 U.S. and foreign patents, including five U.S. patents covering
the use of oral Type I, II, or III collagen to treat rheumatoid arthritis;
five U.S. patents covering the treatment of cell-mediated autoimmune disease
by nasal or by inhalation administration of autoantigens, and in particular
covering treatment of multiple sclerosis or rheumatoid arthritis using nasal
or by inhalation administration of compositions containing myelin basic
protein or collagen, respectively, or active fragments thereof; three U.S.
patents covering suppression of allograft rejection by oral administration of
a major histocompatibility complex Class II antigen or an active fragment
thereof; three U.S. patents covering the treatment, or prevention of the onset
of, Type 1 diabetes by oral or nasal administration of a composition
containing insulin or a fragment of insulin; one U.S. patent covering
treatment of multiple sclerosis by oral administration of bovine myelin; and
one U.S. patent covering a method for preparing Type II collagen. The European
and Japanese Patent Offices have each granted a patent to the Company covering
the use of compositions containing autoantigens to treat a group of human
autoimmune diseases, but oppositions (proceedings challenging their validity)
have been filed against these patents by a third party. The Japanese Patent
Office has issued a decision adverse to the patent, but the Company has filed
a response, and that decision is under review at present. A number of the
pending U.S. patent applications which the Company owns or to which it has
exclusive rights have been allowed and are expected to issue in the near
future.
The Company owns a patent application originally filed by BWH for the
treatment of autoimmune diseases by oral administration of autoantigens,
including a number of specific patent claims directed to the treatment of
multiple sclerosis. The disclosure contained in this initial patent
application has been significantly expanded in a chain of successor
applications. There can be no assurance, however, that patents will be granted
on these applications or that the Company will succeed in developing
additional products that are patentable.
The Company has applied for patents, or acquired rights to patent
applications, covering oral tolerance methods of treating or preventing other
specific autoimmune diseases and related conditions, including uveitis, Type 1
diabetes, transplant rejection, Alzheimer's disease and various skin
disorders, including psoriasis. It has filed applications that claim
tolerization treatment of autoimmune diseases by inhalation of autoantigens in
aerosol form, use of synergizing compounds to enhance the treatment of
autoimmune disorders, specific peptides thought to be involved in multiple
sclerosis, and bystander suppression, by which oral tolerance can be induced
without identifying the specific antigen causing an autoimmune disease.
There can be no assurance that patent applications owned by, or licensed to,
the Company will issue as patents or that, if issued, the Company's patents
will be valid or that they will provide the Company with meaningful protection
against competitors or with a competitive advantage. There can be no assurance
that the Company will not need to acquire licenses under patents belonging to
others for technology potentially useful or necessary to the Company and there
can be no assurance that such licenses will be available to the Company, if at
all, on terms acceptable to the Company. Moreover, there can be no assurance
that any patent issued to or licensed by the Company will not be infringed or
circumvented by others. In particular, if the Company is unable to obtain
issuance of a patent with broad claims with respect to oral tolerance
treatment of autoimmune diseases or if the Company is unable to prevail in
oppositions against foreign patents of the Company with similar claim scope a
competitor may be able to design around the Company's patent rights by
employing a treatment that is not covered by the Company's subsisting patents.
Much of the Company's know-how and technology may not be patentable. To
protect its rights, the Company requires employees, consultants, advisors and
collaborators to enter into confidentiality agreements.
11
<PAGE>
There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure. In
addition, the Company's business may be adversely affected by competitors who
independently develop competing technologies, especially if the Company
obtains no, or only narrow, patent protection.
Lastly, there can be no assurance that third-parties will not bring suit
against the Company for patent infringement or for declaratory judgment to
have the Company's patents declared invalid.
Competition
The pharmaceutical industry is highly competitive, and research on the
causes of and possible treatments for autoimmune diseases is developing
rapidly. The Company competes with a number of pharmaceutical and
biotechnology companies which have financial, technical and marketing
resources significantly greater than those of the Company. Some companies with
established positions in the pharmaceutical industry may be better equipped
than the Company to develop and market products based on the application of
new technologies to the treatment of autoimmune diseases. A significant amount
of research in the field is also being conducted at universities and other
not-for-profit research organizations. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for use of technology that they have developed. These institutions
may also market competitive commercial products on their own or through joint
ventures and will compete with the Company in recruiting highly qualified
scientific personnel.
The Company is pursuing areas of product development in which there is a
potential for extensive technological innovation in relatively short periods
of time. The Company's competitors may succeed in developing products that are
more effective than those of the Company. Rapid technological change or
developments by others may result in the Company's potential products becoming
obsolete or non-competitive.
For additional information concerning products developed and under
development by the Company's competitors to treat rheumatoid arthritis, see
"Principal Products in Development--Rheumatoid Arthritis."
Government Regulation
The manufacturing and marketing of the Company's products and certain areas
of its research are subject to regulation for safety and efficacy by numerous
government authorities in the United States and other countries. Domestically,
the Federal Food, Drug and Cosmetic Act, the Public Health Service Act, and
other federal and state statutes and regulations govern the testing,
manufacture, safety, efficacy, labeling, storage, record keeping, approval,
advertising and promotion of the Company's products. There can be no assurance
that the Company will ever obtain the government approval necessary to make
commercial sales of any of its products.
Further, the FDA may grant Orphan Drug status, under the Orphan Drug Act, to
therapeutic agents which are intended to treat a "rare disease or condition,"
which is generally described as a disease or condition that affects fewer than
200,000 individuals in the United States, but also includes multiple sclerosis
and certain other diseases. Orphan Drug status confers upon the sponsor tax
credits for the amounts expended on clinical trials, as well as marketing
exclusivity for the proposed therapeutic indication for a period of seven
years following approval of a New Drug Application ("NDA") or Biologics
License Application ("BLA"). This status does not convey any advantage during
regulatory review, but it is possible that products may qualify both for
Orphan Drug status and also for fast-track regulatory review. Colloral for
juvenile rheumatoid arthritis has been designated as an Orphan Drug. The
Company also expects to apply for Orphan Drug status on AI 301, its product
for uveitis. To receive the benefits of Orphan Drug designation, however, the
Company must be first to receive FDA approval of the product for the
particular indication.
AutoImmune believes that many of its products under development will be
classified by the FDA as "biologic products," while others may be classified
as "drug products." As part of its regulatory strategy, the
12
<PAGE>
Company intends to direct some of its products into the Biologics Divisions of
the FDA. While both biologics and drugs can qualify for Orphan Drug status,
biologics, once approved, have no current provision for subsequent competitors
to market generic versions. Each biologic, even if it has the same composition
and is for the same indication, must undergo the entire development process in
order for a competitive firm to obtain FDA approval.
New drug or biological products require several steps in order to receive
regulatory approval, including (i) preclinical laboratory and animal tests;
(ii) submission by the Company or an individual physician to the FDA of an
application for an IND, or submission to a research institution of an
Institutional Review Board approval for intrastate trials, one of which must
become effective before human clinical trials may start; (iii) the performance
of well-controlled clinical trials; and (iv) the submission of an NDA or BLA
containing the results of clinical trials and methods of manufacture of the
product prior to commercial sale or shipment of the product. During the
approval process, the FDA must confirm that good laboratory and clinical
practices were maintained during product testing as well as good manufacturing
practices were employed in product manufacture.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess potential product safety and efficacy. The results of
the preclinical tests are submitted to the FDA as part of an IND, and, unless
the FDA objects, the IND becomes effective, and clinical trials may begin, 30
days after the FDA receives the filing.
The initial clinical evaluation, Phase I trials, generally involve
administration of a product to a small number of persons. The product is
tested for safety, dosage tolerance, metabolism, and pharmacokinetic
properties. Phase II trials generally involve administration of a product to a
limited number of patients with a particular disease to determine dose level,
efficacy and safety. Phase III trials generally examine the clinical efficacy
and safety in an expanded patient population at multiple clinical sites. The
FDA reviews the clinical plans and the results of trials and can discontinue
the trials at any time if there are significant safety issues or if there is
convincing evidence that a drug is not effective for the purpose for which it
is being investigated. Each of AutoImmune's clinical trials will be conducted
with the approval of an Institutional Review Board at the institution where
the trial will be conducted. The Institutional Review Board considers, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution. Pivotal Phase III trials are designed to
demonstrate definitive efficacy. More than one trial is usually required for
FDA approval to market a drug. The results of the preclinical and clinical
trials are submitted after completion of the pivotal Phase III trials in the
form of a BLA or NDA for approval to commence commercial sales. The approval
process is affected by several factors, including the severity of the disease,
the availability of alternative treatments and the risks and benefits
demonstrated in clinical trials. The FDA may also require post-marketing
surveillance to monitor potential adverse effects of the product. The
regulatory process can be modified by Congress or the FDA in specific
situations.
The length of the regulatory review process cannot be predicted with
certainty for new individual products. The Drug Price Competition and Patent
Term Restoration Act, however, defines the original period of enforceability
for a product or use patent to be 17 years from issuance or 20 years from
filing. Under certain circumstances, to compensate the patent holder for the
time required for FDA regulatory review, this period may be extended for up to
5 years. This Act also establishes a period following FDA approval of a
product during which the FDA may not accept or approve short-form applications
for generic versions of the drug from other sponsors.
The Company also will be subject to government regulations enforced under
the Occupational Safety and Health Act, the Environmental Protection Act, the
United States Atomic Energy Act, the Clean Air Act, the Clean Water Act, the
National Environmental Policy Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act, and other national, state or local
restrictions.
In addition, the Company's ability to successfully commercialize human
therapeutic products may depend in part on the extent to which reimbursement
for the cost of such products and related treatment will be available from
government health administration authorities, private health coverage insurers
and other organizations. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and there
13
<PAGE>
can be no assurance that adequate third-party coverage will be available for
the Company to maintain price levels sufficient for realization of an
appropriate return on its investment in product development.
Employees
As of March 5, 1999, AutoImmune employed 23 individuals full-time, 4 of whom
hold Ph.D. degrees. Of its total work force, 17 employees are engaged in
research and development activities and 6 are devoted to support and
administrative activities. AutoImmune believes it maintains good relations
with its employees.
Factors To Be Considered
The parts of this Annual Report on Form 10-K titled "Item 1--Business" and
"Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operations" contain forward-looking statements which involve risks
and uncertainties. Set forth below is a discussion of certain factors that
could cause the Company's actual results to differ materially from the results
projected in such forward-looking statements.
Developmental Stage of the Company's Products. The Company has not completed
the development of any products. The Company's products require significant
additional clinical testing and investment prior to commercialization.
Products for therapeutic use in human health care must be evaluated in
extensive human clinical trials to determine their safety and efficacy as part
of a lengthy process to obtain government approval. The Company has a number
of products in clinical development, including Colloral, AI 401 and AI 502.
Positive results for a product in a clinical trial do not necessarily assure
that future clinical trials will yield positive results or that the government
will approve the commercialization of the product. Clinical trials may be
terminated at any time for many reasons, including toxicity or a lack of
efficacy based upon mid-trial examinations of clinical trial data or adverse
event reporting. There can be no assurance that the Company will successfully
develop any product or that the Company's products will prove to be safe and
efficacious in clinical trials, meet applicable regulatory standards, receive
required regulatory approvals, be capable of being produced in commercial
quantities at reasonable costs or be successfully marketed. The Company also
may encounter problems in clinical trials that will cause the Company to delay
or suspend product development. The Company does not expect that its products
will be commercially available in 1999.
History of Operating Losses; Lack of Product Revenues. From its inception in
1988 through December 31, 1998, the Company accumulated net losses of
$100,801,000. The Company expects to continue to incur losses for a number of
years as the Company continues its research, development and clinical trial
programs. The Company's ability to achieve profitable operations depends on
the Company successfully completing the development of its products, obtaining
required regulatory approvals and manufacturing and marketing its products.
There can be no assurance that the Company will achieve profitable operations
at any time.
The Company's revenues to date have been earned in connection with
collaborative agreements and the granting of short term rights. The Company
has granted to Teva exclusive worldwide patent rights to the multiple
sclerosis and myasthenia gravis applications of its technology. These rights
were granted in return for payments if certain milestones are achieved and
royalties based on sales, if any. There can be no assurance that the Company
will derive any revenues from the Teva agreement. At present, there are no
other agreements that entitle the Company to receive revenues.
Additional Financing Requirements and Access to Capital. Since inception,
the Company has raised net proceeds of $116,000,000 from the sale of equity
securities in private placements and public stock offerings. The Company will
require substantial funds for further research and development, existing and
planned clinical trials, regulatory approvals, establishment of commercial-
scale manufacturing capabilities and the marketing of its products. Based upon
its current plans, the Company believes that current cash and marketable
securities and the interest earned from the investment thereof will be
sufficient to meet the Company's operating expenses and capital requirements
through the Phase III clinical program for Colloral. Thereafter, the Company
will need to raise substantial additional capital to fund its operations,
including clinical trials and commercialization efforts.
14
<PAGE>
The Company intends to seek such additional funding through public or
private equity or debt financings, collaborative arrangements with
pharmaceutical companies or other sources. There can be no assurance that
additional financing will be available on acceptable terms, if at all. If
adequate funds are not available, the Company will have to reduce certain
areas of research, product development, manufacturing or marketing activity or
otherwise modify its business strategy, and its business will be materially
adversely affected.
Dependence on Collaborative Agreements. One of the Company's historic
objectives has been to enter into licensing agreements or joint ventures with
established pharmaceutical companies for products to be sold in foreign
markets or for products to treat diseases which involve large physician
audiences and/or which are expected to have longer regulatory approval cycles.
The Company has an agreement with Teva with respect to multiple sclerosis and
myasthenia gravis products. There can be no assurance that the Company will be
able to negotiate other acceptable arrangements in the future, to the extent
the Company desires to do so, or that such arrangements will be successful.
The majority of the Company's basic research to date has been done through
agreements with The Brigham and Women's Hospital and other medical research
institutions. Since 1993, the Company has conducted some research and most of
its development activities internally. Currently the Company has 17 full-time
employees engaged in research and product development. Nevertheless, the
Company expects to continue to be at least partially dependent upon research
performed under contract with The Brigham and Women's Hospital. If the Company
is unable to maintain this relationship, the Company would be adversely
affected and the Company's ability to commercialize future products would be
delayed.
Manufacturing and Marketing. The Company has not yet introduced any products
and has limited manufacturing experience. To be successful, the Company's
products must be manufactured in commercial quantities in compliance with
regulatory requirements and at acceptable costs. The Company currently has
facilities for bulk manufacturing of its product Colloral in commercial
quantities. FDA approval has not yet been obtained for this facility and there
can be no assurance that it will meet regulatory requirements without
additional investments. The Company has contract manufacturers perform filling
and packaging of Colloral for clinical trials. To the extent the Company
relies upon contract manufacturers, there can be no assurance that such
parties will perform their obligations in a timely fashion. The failure by
third parties to perform their obligations in a timely fashion could delay
clinical trials or commercialization of a product and could adversely affect
the Company's ability to supply the market. There can be no assurance that the
Company will be able to enter into agreements to manufacture its products, if
the Company desires to do so, on favorable terms, if at all.
If the Company chooses to expand its manufacturing facilities to include
filling and packaging, there can be no assurance that the Company will be
successful in doing so. Developing its own full-scale manufacturing facilities
will require substantial additional funds. All manufacturing facilities must
comply with applicable regulations of the FDA. No assurance can be given that
the Company's products will not require raw materials for which the sources
and amount of supply are limited. An inability to obtain adequate supplies of
such raw materials could significantly delay the development, regulatory
approval and marketing of the Company's products.
The Company has no sales organization or marketing force. In order to market
any of its products directly, the Company must develop a marketing and sales
force with sufficient technical expertise to generate demand for its products.
There can be no assurance that the Company will be able to establish effective
sales and distribution capabilities or be successful in gaining market
acceptance for its products.
Patents and Proprietary Rights. The Company's success will depend, in part,
on its ability to obtain patents and Orphan Drug protection, maintain trade
secret protection and operate without infringing on the proprietary rights of
third parties or having third parties circumvent the Company's rights. The
Company has received or has exclusive rights to 49 U.S. and foreign patents.
The Company has filed and is actively pursuing numerous applications for
additional U.S. and foreign patents, and is an assignee or licensee of the
rights to other
15
<PAGE>
patent applications. The patent positions of biotechnology and pharmaceutical
companies can be highly uncertain and involve complex legal and factual
questions. For example, no consistent policy has emerged regarding the breadth
of biotechnology patent claims that are granted by the United States Patent
Office or enforced by the federal courts. Thus, there can be no assurance that
any patents issued to the Company will provide the Company with any
competitive advantages or will not be challenged by any third parties, that
the patents of others will not impede the ability of the Company to do
business or that third parties will not be able to circumvent the Company's
patents, that any of the Company's patent applications will result in the
issuance of patents or that the Company will develop additional proprietary
products that are patentable. Certain of the Company's foreign patents are
currently subject to or under opposition, a proceeding which, if resolved
adversely to the Company, can result in revocation of a patent or curtailment
of its claim scope. See "Strategy--Protecting the Company's Competitive
Position." There can be no assurance that the Company will prevail in such
oppositions. Furthermore, there can be no assurance that others will not
develop independently similar products, duplicate any of the Company's
products, or, if patents are issued to the Company, design around the patented
products developed by the Company. Although the Company has obtained Orphan
Drug status in the United States for some of its products, it also must be the
first to market an effective treatment for a particular disease in order to
obtain the protections afforded to Orphan Drugs.
The Company may be required to obtain licenses from third parties to avoid
infringing patents or other proprietary rights. No assurance can be given that
any licenses required under any such patents or proprietary rights would be
available, if at all, on terms acceptable to the Company. If the Company does
not obtain such licenses, it could encounter delays in product introductions,
or could find that the development, manufacture or sale of products requiring
such licenses could be prohibited. In addition, the Company could incur
substantial costs in defending itself in suits brought against the Company on
patents it might infringe or in filing suits against others to have such
patents declared invalid.
Much of the Company's know-how and technology may not be patentable. To
protect its rights, the Company requires employees, consultants, advisors and
collaborators to enter into confidentiality agreements. There can be no
assurance, however, that these agreements will provide meaningful protection
for the Company's trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosure. Furthermore, the Company's
business may be adversely affected by competitors who independently develop
competing technologies, especially if the Company obtains no, or only narrow,
patent protection.
Technological Change and Competition. The biotechnology and pharmaceutical
industries are subject to rapid and significant technological change. The
Company's competitors are numerous and include, among others, major
pharmaceutical companies, biotechnology firms, universities and other research
institutions in the United States and abroad. There can be no assurance that
the Company's competitors will not develop technologies and products that are
more effective than any being developed by the Company or that would render
the Company's technology and products obsolete or noncompetitive. Many of
these competitors have substantially greater financial and technical resources
and production and marketing capabilities than the Company. In addition, many
of the Company's competitors have significantly greater experience than the
Company in conducting preclinical testing and clinical trials of
pharmaceutical products and obtaining FDA and other regulatory approvals of
products for use in health care. Accordingly, the Company's competitors may
obtain FDA approval for products more rapidly than the Company. If the Company
commences significant commercial sales of its products, it will also compete
with other companies with respect to manufacturing efficiency and marketing
capabilities, areas in which it has limited experience.
Government Regulation. The Company's production and marketing of its
products and ongoing research and development activities are subject to
regulation by numerous government authorities in the United States and other
countries. Prior to marketing, any therapeutic product developed by the
Company must undergo rigorous preclinical testing and clinical trials, as well
as an extensive regulatory approval process mandated by the FDA and foreign
regulatory agencies. These processes can take many years and require the
expenditure of substantial resources. The Company has limited experience in
conducting and managing the preclinical and
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<PAGE>
clinical trials necessary to obtain government approvals. Delays in obtaining
regulatory approvals would adversely affect the marketing of the Company's
products and its ability to receive product revenues or royalties. There can
be no assurance that the Company will be able to obtain the clearances and
approvals necessary for the clinical testing or manufacturing and marketing of
its products. Existing or additional government regulation could prevent or
delay regulatory approval of the Company's products or affect the pricing or
marketing of such products.
Year 2000 Issues. Certain computer programs use only two digits to identify
a year in the date field. As a result, many computer applications may fail or
create erroneous results by or at the Year 2000. The Company's business is not
dependent on its computer programs and does not electronically interact in any
significant manner with suppliers, customers, creditors, borrowers and
financial service organizations. The impact on the Company of Year 2000 issues
is expected to be minimal, but there can be no assurance that the Company will
not be adversely affected by such issues.
Item 2. Properties.
AutoImmune's administrative offices and research facilities occupy
approximately 11,000 square feet of leased space in Lexington, Massachusetts.
The lease runs through November 1999 and includes renewal clauses. The Company
believes that its facilities are adequate for its present and anticipated
purposes, except that additional facilities may be needed if the Company
expands its manufacturing operations.
Item 3. Legal Proceedings.
The Company is not a party to any litigation or legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of fiscal 1998.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol AIMM. The following table shows the quarterly high and low closing
price on Nasdaq for a share of the Company's common stock for the fiscal years
ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
Price range of
common stock
---------------
High Low
------- -------
<S> <C> <C>
Fiscal year ending December 31, 1997
First quarter $ 18.25 $ 11.00
Second quarter $ 14.50 $ 1.63
Third quarter $ 2.88 $ 1.69
Fourth quarter $ 3.50 $ 2.56
Fiscal year ending December 31, 1998
First quarter $ 3.44 $ 2.25
Second quarter $ 3.06 $ 2.31
Third quarter $ 2.62 $ 1.62
Fourth quarter $ 2.56 $ 1.56
</TABLE>
As of March 5, 1999, there were 259 record holders of the Company's Common
Stock.
AutoImmune has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings, if any, and
therefore does not anticipate paying any cash dividends on its capital stock
in the foreseeable future.
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Item 6. Selected Financial Data.
The selected financial data set forth below are derived from financial
statements that have been audited by PricewaterhouseCoopers LLP, independent
accountants. The balance sheet at December 31, 1997 and 1998 and the related
statements of operations and of cash flows for the three years ended December
31, 1998 and notes thereto appear elsewhere in this Form 10-K. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and related notes included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenue:
Option fees $ -- $ 1,500,000 $ -- $ -- $ --
Research and
development revenue
under collaborative
agreements -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total revenue -- 1,500,000 -- -- --
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Research and
development:
Related party 2,257,000 2,294,000 2,158,000 1,880,000 1,314,000
All other 11,381,000 12,554,000 22,029,000 15,426,000 11,496,000
General and
administrative 1,662,000 2,213,000 2,414,000 2,214,000 1,712,000
------------ ------------ ------------ ------------ ------------
Total costs and
expenses 15,300,000 17,061,000 26,601,000 19,520,000 14,522,000
------------ ------------ ------------ ------------ ------------
Loss from operations (15,300,000) (15,561,000) (26,601,000) (19,520,000) (14,522,000)
Interest income, net 623,000 1,968,000 3,117,000 1,995,000 1,337,000
------------ ------------ ------------ ------------ ------------
Net loss $(14,677,000) $(13,593,000) $(23,484,000) $(17,525,000) $(13,185,000)
============ ============ ============ ============ ============
Net loss per share--
basic and diluted(1) $ (1.44) $ (1.01) $ (1.44) $ (1.07) $ (0.80)
============ ============ ============ ============ ============
Weighted average
common shares
outstanding--basic
and diluted(1) 10,205,567 13,522,091 16,303,051 16,385,629 16,491,701
============ ============ ============ ============ ============
<CAPTION>
December 31,
--------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash
equivalents and
marketable
securities $ 15,568,000 $ 70,453,000 $ 49,310,000 $ 30,025,000 $ 17,528,000
Working capital 13,825,000 68,791,000 45,453,000 28,983,000 16,325,000
Total assets 18,218,000 72,981,000 52,462,000 31,498,000 18,326,000
Capital lease
obligations less
current maturities 1,031,000 569,000 627,000 193,000 --
Deficit accumulated
during development
stage (33,018,000) (46,611,000) (70,095,000) (87,620,000) (100,805,000)
Total stockholders'
equity 15,102,000 70,418,000 47,341,000 29,880,000 16,917,000
</TABLE>
- --------
(1) Basic net loss per share is calculated by dividing net loss by the
weighted average number of common shares outstanding during the year in
accordance with the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share. For each of the periods presented,
basic and diluted net loss per share are the same due to the antidilutive
effect of potential common shares.
19
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Overview
Since its inception through December 31, 1998, the Company has incurred
ongoing losses from operations and has cumulative losses as of December 31,
1998 totaling $100,801,000. To date, the Company has not recorded any revenue
from the sale of products. Revenue recorded through December 31, 1998 was
earned in connection with contract research and the granting of certain short-
term rights.
The Company expects to remain in the development stage for the foreseeable
future and accordingly expects to continue to incur substantial losses.
Years Ended December 31, 1997 and 1998
No revenues were earned in the years ended December 31, 1997 and 1998.
Research and development expenses were $17,306,000 in 1997, as compared with
$12,810,000 for the year ended December 31, 1998. The decrease is due to lower
levels of research and clinical trial activity in 1998 and restructuring costs
recorded in 1997.
General and administrative expenses were $2,214,000 in 1997, as compared
with $1,712,000 for the year ended December 31, 1998. The decrease is due
primarily to decreased personnel costs and corporate activity and
restructuring costs recorded in 1997.
Net interest income was $1,995,000 in 1997, as compared with $1,337,000 for
the year ended December 31, 1998. The decrease is due to a lower balance of
cash available for investment.
The net loss was $17,525,000 in 1997, as compared with $13,185,000 for the
year ended December 31, 1998. The net loss per share decreased from $1.07 for
the year ended December 31, 1997 to $0.80 for the year ended December 31,
1998. The change reflects a decrease in personnel costs and research and
development activity levels and restructuring costs recorded in 1997.
Years Ended December 31, 1996 and 1997
No revenues were earned in the years ended December 31, 1996 and 1997.
Research and development expenses were $24,187,000 in 1996, as compared with
$17,306,000 for the year ended December 31, 1997. The decrease reflects
overall reduced research and clinical trial activity levels partially offset
by restructuring costs incurred as a result of a corporate downsizing.
General and administrative expenses were $2,414,000 in 1996, as compared
with $2,214,000 for the year ended December 31, 1997. The decrease is due
primarily to increased corporate activity and restructuring costs in the first
half of 1997 offset by reduced corporate activity in the second half of 1997
after the restructuring occurred.
Net interest income was $3,117,000 in 1996, as compared with $1,995,000 for
the year ended December 31, 1997. The decrease is due to a lower balance of
cash available for investment.
The net loss was $23,484,000 in 1996, as compared with $17,525,000 for the
year ended December 31, 1997. The net loss per share decreased from $1.44 for
the year ended December 31, 1996 to $1.07 for the year ended December 31,
1997. This reflects the recent decrease in research and development activity
levels partially offset by restructuring costs incurred as a result of a
corporate downsizing.
20
<PAGE>
In April 1997, the Company announced disappointing results from the Phase
III trial of Myloral(R), its product for multiple sclerosis. Very soon
thereafter, the Company also announced a corporate downsizing by eliminating
23 positions directly related to the Myloral program and an increased focus of
resources on the development of Colloral for rheumatoid arthritis. The Company
recorded a charge during the second quarter of 1997 of approximately $618,000
relating primarily to employee severance costs and costs associated with
terminating Myloral manufacturing and clinical trial functions. This estimated
charge was adjusted to $615,000 during the third quarter of 1997 to reflect
actual costs incurred.
In May 1997, the Company announced preliminary results from two Phase II
trials of Colloral for rheumatoid arthritis. Both trials demonstrated positive
trends for Colloral, although statistical significance was not demonstrated
versus placebo. A restructuring plan was announced in June 1997, to further
focus the Company's efforts to the clinical program for Colloral. This
resulted in a further workforce reduction of 30 positions. The Company
recorded a charge during the second quarter of 1997 of approximately
$2,689,000 relating to employee severance, costs associated with vacating
leased space and equipment disposal and write-offs. This estimated charge was
adjusted to $1,636,000 during the third quarter of 1997 to reflect the
sublease of 22,000 square feet of space and actual costs incurred.
Liquidity and Capital Resources
The Company's needs for funds have historically increased from period to
period as it has increased the scope of its research and development
activities although its current needs have been reduced as a result of the
restructuring plan which occurred during the first half of 1997. Since
inception, the Company has funded these needs almost entirely through sales of
its equity securities.
The Company's working capital and capital requirements will depend on
numerous factors, including the progress of the Company's research and
development activities, the level of resources that the Company devotes to the
development, clinical, regulatory and marketing aspects of its products, the
extent to which it proceeds by means of collaborative relationships with
pharmaceutical companies and its competitive environment. Based upon its
current plans, the Company believes that current cash and marketable
securities and the interest earned from the investment thereof will be
sufficient to meet the Company's operating expenses and capital requirements
through the Phase III clinical program of Colloral. At the appropriate time,
the Company intends to seek additional funding through public or private
equity or debt financings, collaborative arrangements with pharmaceutical
companies or from other sources. If additional funds are necessary but not
available, the Company will have to reduce certain areas of research, product
development, manufacturing or marketing activity, or otherwise modify its
business strategy, and its business will be materially adversely affected.
In order to preserve principal and maintain liquidity, the Company's funds
are invested in U.S. Treasury obligations and other short-term instruments. As
of December 31, 1998, the Company's cash and cash equivalents and marketable
securities totaled $17,528,000. Current liabilities at December 31, 1998 were
$1,409,000.
Year 2000 Preparedness
The Company's management has completed its review of Year 2000 issues and
believes that Year 2000 issues will not have a material effect on the
Company's business, results of operations or financial condition. The major
functions of the Company that utilize computers and could be susceptible to
Year 2000 issues are manufacturing, clinical data and analysis, financial and
general office. The scope of the Year 2000 issues for each of these functions
is described below.
Manufacturing. The Company's internal bulk manufacturing process is a
mechanical process. Neither the process nor the raw materials used in the
process are expected to be affected by Year 2000 issues. The Company maintains
data relating to its manufacturing processes on databases using standard
software packages that are Year 2000 compliant. It also maintains all data in
hard copy format. The Company has been upgrading its
21
<PAGE>
hardware systems used to maintain manufacturing data as system requirements
have changed and these upgrades have included Year 2000 solutions. The Company
anticipates that its hardware systems will be fully upgraded and Year 2000
compliant before December 31, 1999. The Company uses outside vendors to
perform filling, labeling and distribution services in connection with its
manufacturing process. The Company maintains data relating to such services
both in hard copy format and on databases. The vendor that the Company
anticipates using for these services has represented that it will be Year 2000
compliant before December 31, 1999. In any event, hard copy records can be
used and will meet the Company's requirements.
Clinical Data and Analysis. The firm AutoImmune has contracted with to
manage and analyze clinical data has represented to the Company that it is
Year 2000 compliant. In addition, the data that the Company intends to submit
to the FDA will be based on patient activity occurring prior to January 1,
2000 and is in a format that can be accessed with standard programs.
Financial. The Company has been upgrading its financial systems as its
requirements have changed and these upgrades have included Year 2000
solutions. The final component is expected to be upgraded in the second
quarter of 1999 and will be Year 2000 compliant. These upgrades would have
occurred regardless of Year 2000 concerns.
General Office. The Company's office computers have been updated as the
Company's requirements have increased. As a result, almost all are Year 2000
compliant. The Company's network and phone systems require Year 2000 software
upgrades that are scheduled for installation in the last quarter of 1999. The
estimated cost of these upgrades is $20,000.
Impact of Year 2000. The Company's exposure to Year 2000 is limited by the
nature of its operations. The Company is not electronically dependent on its
vendors. Its software packages, other than its network and phone system
packages, are standard and the Company's hardware is already Year 2000
compliant or is scheduled to be upgraded before December 31, 1999. These
upgrades to the Company's hardware systems would have occurred regardless of
the Year 2000. In the worst case scenario, the Company could easily revert to
using hard copies. This scenario would be more time consuming, but would not
be expected to result in revenue losses or liability to third parties.
Item 8. Financial Statements and Supplementary Data.
Information with respect to the Company's financial statements and financial
statement schedules filed with this report is set forth in Item 14 of Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
22
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Director information is incorporated by reference to the Company's proxy
statement which the Company intends to file with the Securities and Exchange
Commission and mail to shareholders within 120 days of the Company's fiscal
year ended December 31, 1998.
Executive officer information is as follows:
Robert C. Bishop, Ph.D., age 56, became a director of the Company in May
1992, when he was also elected President and Chief Executive Officer. For more
than five years prior to joining the Company, Dr. Bishop held senior
management positions at Allergan, Inc., an eye and skin care company,
including President of Allergan Medical Optics from 1986 to 1988, Senior Vice
President, Corporate Development of Allergan, Inc. from 1988 to 1989,
President of Allergan Pharmaceuticals, Inc. from 1989 to 1991 and Group
President, Therapeutics for Allergan's worldwide pharmaceutical, surgical and
neurotoxin businesses from February 1991 to May 1992. From 1976 through 1986,
Dr. Bishop served as an executive of American Hospital Supply Corporation. Dr.
Bishop received his B.A. degree and a Ph.D. in biochemistry from the
University of Southern California and his M.B.A. from the University of Miami.
Dr. Bishop is a director of Quintiles Transnational Corp., a contract
research, sales and marketing company serving the health care industry. Dr.
Bishop is also a director of Millipore Corporation, a purification
technologies/systems company serving the microelectronics, biopharmaceutical
and analytical laboratories markets.
Heather A. Ellerkamp, CPA, age 34, joined the Company in February 1994.
Since June 1997, Ms. Ellerkamp has been Director of Finance and Treasurer of
the Company, and from February 1994 to June 1997, she held various financial
positions with the Company, including controller. From 1992 to 1994, she was
employed by Kendall Square Research Corporation, most recently as Corporate
Accounting Manager and Assistant Controller. Ms. Ellerkamp received her B.A.
degree in Management Science from the University of California, San Diego and
her M.B.A. from the University of Michigan.
Jo Ann Wallace, age 44, joined the Company in October 1994. In January 1999,
Ms. Wallace became Senior Vice President of the Company. From October 1994 to
January 1999, she was Vice President, Corporate Development of the Company.
From 1993 to 1994, she was Vice President, Sales and Marketing at Greenwich
Pharmaceuticals, Inc. From 1981 to 1993, Ms. Wallace was employed by G.D.
Searle & Co., most recently as Senior Director in U.S. Marketing. Ms. Wallace
received her B.S. degree in microbiology from the University of Texas.
Item 11. Executive Compensation.
Incorporated by reference to the Company's proxy statement which the Company
intends to file with the Securities and Exchange commission and mail to
shareholders within 120 days of the Company's fiscal year ended December 31,
1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Company's proxy statement which the Company
intends to file with the Securities and Exchange Commission and mail to
shareholders within 120 days of the Company's fiscal year ended December 31,
1998.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
23
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Balance Sheet at December 31, 1997 and 1998 F-3
Statement of Operations for the three years ended December 31, 1998 and
for the period from inception (September 9, 1988) through December 31,
1998 F-4
Statement of Changes in Stockholders' Equity for the period from
inception (September 9, 1988) through December 31, 1998 F-5
Statement of Cash Flows for the three years ended December 31, 1998 and
for the period from inception (September 9, 1988) through December 31,
1998 F-6
Notes to the Financial Statements F-7
</TABLE>
(a)(2) Financial Statement Schedule
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements.
(a)(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
3.1 --Restated Certificate of Incorporation(1)
3.2 --By-Laws(2)
4.1 --Specimen Common Stock Certificate(2)
10.1 --Amended and Restated 1988 Stock Option Plan effective December 14,
1992(1)
10.2 --Agreement, dated March 18, 1992, between AutoImmune Inc. and
Schering Corporation(2)+
10.3 --Lease Agreement, dated November 1992, between AutoImmune Inc. and
Ledgemont Realty Trust(2)
10.4 --Amended and Restated Research and Development Agreement, dated July
1, 1992, between AutoImmune Inc. and The Brigham and Women's
Hospital, Inc.(2)
10.5 --Research Agreement, dated October 21, 1992, and Royalty Agreement,
dated 1992, between AutoImmune Inc. and Joslin Diabetes Center(2)
10.6 --Research Agreement, dated July 1, 1992, Royalty Agreement, dated
June 6, 1990, and Research Agreement, dated July 1990, between
AutoImmune Inc. and the Beth Israel Hospital(2)
10.7 --Cooperative Research and Development Agreement, effective July 1,
1990, among the National Eye Institute of the National Institutes of
Health, The Brigham and Women's Hospital and AutoImmune Inc.(2)
10.8 --Retainer Agreement, dated June 1, 1992, between AutoImmune Inc. and
Cato Research Ltd.(2)
10.9 --Employment Agreement, dated April 2, 1992, between AutoImmune Inc.
and Robert C. Bishop(2)
10.10 --Amended Consulting Agreement, dated July 1992, and Amended and
Restated Consulting Agreement, dated November 1988, between
AutoImmune Inc. and Howard L. Weiner, M.D.(2)
10.11 --Amended Consulting Agreement, dated July 1992, and Amended and
Restated Consulting Agreement, dated November 1988, between
AutoImmune Inc. and David A. Hafler, M.D.(2)
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.13 --Consulting Agreement, dated February 1, 1989, between AutoImmune
Inc. and James P. Tam, Ph.D.(2)
10.14 --Scientific Advisory Board Agreement, dated August 5, 1992, and
Consulting Service Agreement, dated August 5, 1992, between
AutoImmune Inc. and Jack L. Strominger, M.D.(2)
10.15 --Scientific Advisory Board Agreement, dated August 11, 1992, between
AutoImmune Inc. and Herman N. Eisen, M.D.(2)
10.16 --Scientific Consultant Agreement, dated July 16, 1992, between
AutoImmune Inc. and Henry Oettinger, Ph.D.(2)
10.17 --Nonemployee Director Stock Option Plan(3)
10.18 --Employee Stock Purchase Plan(4)
10.19 --License and Collaboration Agreement dated December 1, 1994 between
AutoImmune Inc. and Eli Lilly and Company(5)+
10.20 --First Amendment to Lease dated October 31, 1993 between AutoImmune
Inc. and Ledgemont Realty Trust(6)
10.21 --Second Amendment to Lease dated February 1, 1996 between AutoImmune
Inc. and Ledgemont Realty Trust(6)
10.22 --Third Amendment to Lease, dated October 23, 1996 between AutoImmune
Inc. and Ledgemont Realty Trust(7)
10.23 --Sublease agreement, dated November 1, 1997 between AutoImmune Inc.
and Antigenics, LLC(7)
10.24 --Consent to Sublease Agreement, dated November 1, 1997 between
AutoImmune Inc., Antigenics, LLC, and Ledgemont Realty Trust(7)
10.25 --1998 Stock Option Plan(8)
10.26 --Development and License Agreement dated as of December 4, 1998
between AutoImmune Inc. and Teva Pharmaceutical Industries Ltd.++
10.27 --Sublease Termination Agreement, dated June 15, 1998 between
AutoImmune Inc. and Antigenics, LLC
10.28 --Fourth Amendment to Lease, dated July 17, 1998 between AutoImmune
Inc. and Ledgemont Realty Trust
23 --Consent of PricewaterhouseCoopers LLP
</TABLE>
- --------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992 (File No. 0-20948).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-55430).
(3) Incorporated by reference to Appendix A to the Company's definitive Proxy
Statement dated April 6, 1994 for the Annual Meeting of Shareholders held
on May 18, 1994 filed pursuant to Section 14 of the Exchange Act.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on August 17, 1994
(Registration No. 33-82972).
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, as amended.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(8) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on December 3, 1998
(Registration No. 333-68309).
25
<PAGE>
+ The Company has been granted confidential treatment of the redacted
portions of this exhibit pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended, and has separately filed a complete copy
of this exhibit with the Securities and Exchange Commission.
++ The Company has requested confidential treatment of the redacted portions
of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended, and has separately filed a complete copy of this exhibit
with the Securities and Exchange Commission.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last quarter of
1998.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 12th day
of March, 1999.
AUTOIMMUNE INC.
/s/ Robert C. Bishop
By: _________________________________
Robert C. Bishop,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Robert C. Bishop President and Chief March 12, 1999
______________________________________ Executive Officer
Robert C. Bishop
(Principal Executive Officer)
/s/ Heather A. Ellerkamp Director of Finance and March 12, 1999
______________________________________ Treasurer
Heather A. Ellerkamp
(Principal Financial and Accounting
Officer)
/s/ Barry Weinberg Chairman of the Board of March 12, 1999
______________________________________ Directors
Barry Weinberg
/s/ Allan R. Ferguson Director March 12, 1999
______________________________________
Allan R. Ferguson
/s/ R. John Fletcher Director March 12, 1999
______________________________________
R. John Fletcher
/s/ Henri A. Termeer Director March 12, 1999
______________________________________
Henri A. Termeer
/s/ Hugh A. D'Andrade Director March 12, 1999
______________________________________
Hugh A. D'Andrade
</TABLE>
27
<PAGE>
AutoImmune Inc.
(a development stage company)
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Report of Independent Accountants F-2
Balance Sheet at December 31, 1997 and 1998 F-3
Statement of Operations for the three years ended December 31, 1998 and
for the period from inception (September 9, 1988) through December 31,
1998 F-4
Statement of Changes in Stockholders' Equity for the period from
inception (September 9, 1988) through December 31, 1998 F-5
Statement of Cash Flows for the three years ended December 31, 1998 and
for the period from inception (September 9, 1988) through December 31,
1998 F-6
Notes to the Financial Statements F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of AutoImmune Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of AutoImmune
Inc. (a development stage company) at December 31, 1997 and 1998, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1998 and for the period from inception
(September 9, 1988) through December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 5, 1999
F-2
<PAGE>
AutoImmune Inc.
(a development stage company)
Balance Sheet
<TABLE>
<CAPTION>
December 31,
1997 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 13,833,000 $ 4,801,000
Marketable securities 16,192,000 12,727,000
Interest receivable 240,000 77,000
Prepaid expenses and other current assets 143,000 129,000
------------ -------------
Total current assets 30,408,000 17,734,000
Fixed assets, net 1,060,000 538,000
Other assets 30,000 54,000
------------ -------------
$ 31,498,000 $ 18,326,000
============ =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 476,000 $ 677,000
Accrued expenses 664,000 539,000
Current portion of obligations under capital
leases 285,000 193,000
------------ -------------
Total current liabilities 1,425,000 1,409,000
------------ -------------
Obligations under capital leases 193,000 --
------------ -------------
Commitments and contingencies (Notes 6 and 14)
------------ -------------
Stockholders' equity:
Common stock, $.01 par value: 25,000,000 shares
authorized; 16,392,896 and 16,548,995 shares
issued and outstanding at December 31, 1997 and
1998, respectively 164,000 166,000
Additional paid-in capital 117,330,000 117,551,000
Deficit accumulated during the development stage (87,620,000) (100,805,000)
Net unrealized gain on marketable securities 6,000 5,000
------------ -------------
29,880,000 16,917,000
------------ -------------
$ 31,498,000 $ 18,326,000
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AutoImmune Inc.
(a development stage company)
Statement of Operations
<TABLE>
<CAPTION>
Period from
inception
(September 9, 1988)
For the year ended December 31, through
1996 1997 1998 December 31, 1998
<S> <C> <C> <C> <C>
Revenue:
Option fees $ -- $ -- $ -- $ 2,200,000
Research and
development revenue
under collaborative
agreements -- -- -- 955,000
------------ ------------ ------------ -------------
Total revenue -- -- -- 3,155,000
------------ ------------ ------------ -------------
Costs and expenses:
Research and
development:
Related party 2,158,000 1,880,000 1,314,000 18,162,000
All other 22,029,000 15,426,000 11,496,000 83,106,000
General and
administrative 2,414,000 2,214,000 1,712,000 13,239,000
------------ ------------ ------------ -------------
Total costs and
expenses 26,601,000 19,520,000 14,522,000 114,507,000
------------ ------------ ------------ -------------
Interest income 3,191,000 2,063,000 1,344,000 10,852,000
Interest expense (74,000) (68,000) (7,000) (301,000)
------------ ------------ ------------ -------------
3,117,000 1,995,000 1,337,000 10,551,000
------------ ------------ ------------ -------------
Net loss $(23,484,000) $(17,525,000) $(13,185,000) $(100,801,000)
============ ============ ============ =============
Net loss per share--
basic and diluted $ (1.44) $ (1.07) $ (0.80)
============ ============ ============
Weighted average
shares outstanding--
basic and diluted 16,303,051 16,385,629 16,491,701
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AutoImmune Inc.
(a development stage company)
Statement of Changes In Stockholders' Equity
For the period from inception (September 9, 1988) through December 31, 1998
<TABLE>
<CAPTION>
Deficit
accumulated Accumulated
Common Stock Additional during the other Total
Number Par paid-in Comprehensive development comprehensive stockholders'
of shares value capital loss stage income equity
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
during 1988 168,750 $ 2,000 $ -- $ (1,000) $ -- $ 1,000
Conversion of junior
convertible preferred
stock to common stock
during 1991 506,250 5,000 (3,000) 2,000
Issuance of common stock
during 1992 91,116 1,000 100,000 101,000
Conversion of
mandatorily redeemable
convertible preferred
stock to common stock
during 1993 6,353,568 63,000 12,496,000 12,559,000
Issuance of common
stock, net of issuance
costs during 1993 3,022,000 30,000 35,669,000 35,699,000
Issuance of common stock
during 1994 67,500 1,000 2,000 3,000
Comprehensive loss:
Net loss for the period
from inception
(September 9, 1988)
through December 31,
1995 $(46,607,000) (46,607,000) (46,607,000)
Other comprehensive
income (loss):
Net unrealized gain on
marketable securities
during 1994 and 1995
(Note 2) 69,000 69,000 69,000
------------
Comprehensive loss (46,538,000)
============
Issuance of common
stock, net of issuance
costs during 1995 6,072,883 61,000 68,530,000 68,591,000
---------- -------- ------------ ------------- -------- ------------
Balance at December 31,
1995 16,282,067 163,000 116,797,000 (46,611,000) 69,000 70,418,000
Comprehensive loss:
Net loss (23,484,000) (23,484,000) (23,484,000)
Other comprehensive
income (loss):
Net unrealized loss on
marketable securities
(Note 2) (35,000) (35,000) (35,000)
------------
Comprehensive loss (23,519,000)
============
Issuance of common stock 75,978 1,000 441,000 442,000
---------- -------- ------------ ------------- -------- ------------
Balance at December 31,
1996 16,358,045 164,000 117,238,000 (70,095,000) 34,000 47,341,000
Comprehensive loss:
Net loss (17,525,000) (17,525,000) (17,525,000)
Other comprehensive
income (loss):
Net unrealized loss on
marketable securities
(Note 2) (28,000) (28,000) (28,000)
------------
Comprehensive loss (17,553,000)
============
Issuance of common stock 34,851 92,000 92,000
---------- -------- ------------ ------------- -------- ------------
Balance at December 31,
1997 16,392,896 164,000 117,330,000 (87,620,000) 6,000 29,880,000
Comprehensive loss:
Net loss (13,185,000) (13,185,000) (13,185,000)
Other comprehensive
income (loss):
Net unrealized loss on
marketable securities
(Note 2) (1,000) (1,000) (1,000)
------------
Comprehensive loss $(13,186,000)
============
Issuance of common stock 156,099 2,000 221,000 223,000
---------- -------- ------------ ------------- -------- ------------
Balance at December 31,
1998 16,548,995 $166,000 $117,551,000 $(100,805,000) $ 5,000 $(16,917,000)
========== ======== ============ ============= ======== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AutoImmune Inc.
(a development stage company)
Statement of Cash Flows
<TABLE>
<CAPTION>
Period from
Increase (Decrease) in inception
Cash and Cash Equivalents For the year ended December 31, (September 9, 1988)
Cash flows from operating through
activities: 1996 1997 1998 December 31, 1998
<S> <C> <C> <C> <C>
Net loss $(23,484,000) $(17,525,000) $(13,185,000) $(100,801,000)
Adjustments to reconcile
net loss to net cash
used by operating
activities:
Interest expense related
to demand notes
converted into
mandatorily redeemable
convertible preferred
stock -- -- -- 48,000
Patent costs paid with
junior convertible
preferred and common
stock -- -- -- 3,000
Depreciation and
amortization 961,000 960,000 567,000 4,153,000
Loss on sale/disposal of
fixed assets -- 604,000 2,000 606,000
Decrease in patent costs -- -- -- 563,000
(Increase) decrease in
interest receivable 19,000 (99,000) 163,000 (77,000)
(Increase) decrease in
prepaid expenses and
other current assets (324,000) 353,000 14,000 (129,000)
Increase (decrease) in
accounts payable 2,053,000 (2,521,000) 201,000 677,000
Increase (decrease) in
accrued expenses 194,000 (118,000) (125,000) 539,000
------------ ------------ ------------ -------------
Net cash used by
operating activities (20,581,000) (18,346,000) (12,363,000) (94,418,000)
------------ ------------ ------------ -------------
Cash flows from investing
activities:
Purchase of available-
for-sale marketable
securities (44,563,000) (30,592,000) (23,878,000) (257,404,000)
Proceeds from
sale/maturity of
available-for-sale
marketable securities 43,016,000 57,250,000 27,342,000 233,671,000
Proceeds from maturity
of held-to-maturity
marketable securities -- -- -- 11,011,000
Proceeds from sale of
equipment -- 64,000 1,000 65,000
Purchases of fixed
assets (1,280,000) (203,000) (48,000) (5,237,000)
Increase in patent costs -- -- -- (563,000)
Increase in other assets -- -- (24,000) (179,000)
------------ ------------ ------------ -------------
Net cash provided
(used) by investing
activities (2,827,000) 26,519,000 3,393,000 (18,636,000)
------------ ------------ ------------ -------------
Cash flows from financing
activities:
Proceeds from sale-
leaseback of fixed
assets 1,039,000 -- -- 2,872,000
Payments on obligations
under capital leases (728,000) (864,000) (285,000) (2,679,000)
Net proceeds from
issuance of mandatorily
redeemable convertible
preferred stock -- -- -- 10,011,000
Proceeds from bridge
notes -- -- -- 300,000
Proceeds from issuance
of common stock 442,000 92,000 223,000 105,151,000
Proceeds from issuance
of convertible notes
payable -- -- -- 2,200,000
------------ ------------ ------------ -------------
Net cash provided
(used) by financing
activities 753,000 (772,000) (62,000) 117,855,000
------------ ------------ ------------ -------------
Net increase (decrease)
in cash and cash
equivalents (22,655,000) 7,401,000 (9,032,000) 4,801,000
Cash and cash
equivalents at
beginning of period 29,087,000 6,432,000 13,833,000 --
------------ ------------ ------------ -------------
Cash and cash
equivalents at end of
period $ 6,432,000 $ 13,833,000 $ 4,801,000 $ 4,801,000
============ ============ ============ =============
</TABLE>
See Note 2 for supplemental disclosure of non-cash financing activities.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
1.Formation and Operations of the Company
AutoImmune Inc. (the "Company") was incorporated in Delaware on September
9, 1988. The Company is dedicated to the development of innovative
pharmaceutical products to treat people who suffer from immune systems
disorders. The Company's therapeutic approach is based upon "oral
tolerance," a method designed to control disease by using the body's
natural immunosuppressive mechanisms. The Company is considered a
development stage company as defined in Statement of Financial Accounting
Standards ("SFAS") No. 7, Accounting and Reporting by Development Stage
Enterprises.
The Company has not yet completed the development of any products. The
Company's products will require significant additional clinical testing and
investment prior to commercialization. To date the Company has been
dependent on collaborative agreements for the majority of its basic
research and has primarily used contract manufacturers to produce its
products for clinical trials.
2.Summary of Significant Accounting Policies
Cash Equivalents and Marketable Securities
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. The
Company invests primarily in U.S. Government debt securities. These
investments are subject to minimal credit and market risks. The Company
specifically identifies securities for purposes of determining gains and
losses on the sale of cash equivalents and marketable securities. At
December 31, 1997 and 1998, the Company has classified all of its
marketable securities as available-for-sale as defined in SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Accordingly, unrealized gains and losses on available-for-sale securities
are recorded as a separate component of stockholders' equity.
Fair Value of Financial Instruments
At December 31, 1998, the Company's financial instruments consist of cash
equivalents, marketable securities and interest receivable, accounts
payable and accrued expenses. The carrying amount of these instruments
approximate their fair values.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line
method over the estimated useful life of the assets. Assets under capital
leases and leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the respective leases by use of the
straight-line method.
Contingent Stock Purchase Warrants
The value of contingent stock purchase warrants issued by the Company in
connection with clinical research agreements is determined on the date that
the Company estimates that it is probable that such contingencies will be
met. The fair value of the warrants on the measurement date is recorded as
compensation expense. The Company periodically assesses whether it is
probable and estimable that the compensation related to contingent warrants
will be earned.
Revenue Recognition
Revenue from research and development arrangements is recognized pursuant
to the related agreements as work is performed or defined milestones are
attained. Payments received under these arrangements prior to the
completion of the related work or attainment of milestones are recorded as
deferred revenue. Option
F-7
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
fees representing payments to be made to the Company for a right to
evaluate and negotiate the terms of a potential licensing arrangement are
recognized as the options are granted as such fees are non-refundable and
the Company has no further obligations.
Stock Compensation
The Company's employee stock option plans are accounted for in accordance
with Accounting Principles Board Opinion ("APB") No. 25, Accounting for
Stock Issued to Employees. The Company applies the disclosure requirements
of SFAS No. 123, Accounting for Stock-Based Compensation.
Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive Income in 1998.
SFAS No. 130 requires that a full set of general purpose financial
statements be expanded to include the reporting of "comprehensive income."
Comprehensive income is comprised of two components, net income and other
comprehensive income. The adoption of SFAS No. 130 resulted in revised and
additional disclosures but had no effect on the financial position or
results of operations.
Net Loss Per Share--Basic and Diluted
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
establishes standards for computing and presenting earnings per share. The
standard replaces the presentation of primary earnings per share prescribed
by APB No. 15, Earnings Per Share, with a presentation of basic earnings
per share and also requires dual presentation of basic and diluted earnings
per share on the face of the statement of operations for all entities with
complex capital structures. Basic earnings per share excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share is computed similarly to fully diluted earnings
per share pursuant to APB No. 15. The Company adopted SFAS No. 128 in the
fourth quarter of fiscal 1997. The basic and diluted net loss per share
under SFAS No. 128 is not different from the previous computation and
presentation. Potential common shares from stock options and warrants are
excluded from the computation of diluted net loss per share as their effect
is antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Statement of Cash Flows
Disclosure of Non-Cash Investing and Financing Activities
In 1988, 168,750 shares of common stock and 168,750 shares of junior
convertible preferred stock were issued to the Brigham and Women's Hospital
in exchange for patent rights and technology contributed or licensed in
connection with the formation of the Company.
Notes payable to stockholders totaling $2,200,000 and related interest of
$48,000 were converted into Series A mandatorily redeemable convertible
preferred stock in 1991.
F-8
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
Bridge notes of $300,000 were converted into Series C mandatorily
redeemable convertible preferred stock in 1991.
In 1991, 168,750 shares of junior convertible preferred stock were
converted into 506,250 shares of common stock.
In 1993, 2,117,856 shares of mandatorily redeemable convertible preferred
stock were converted into 6,353,568 shares of common stock in connection
with the Company's initial public offering of common stock.
Supplemental Disclosure of Cash Flow Information
The Company has paid interest of $74,000, $68,000 and $7,000 in 1996, 1997
and 1998, respectively, and $253,000 since inception. The Company has paid
income taxes of $11,000 in 1996 and since inception.
3.Cash Equivalents and Marketable Securities
The following is a summary of cash equivalents held by the Company. Cash
equivalents are carried at fair market value, which approximated amortized
cost at December 31, 1997 and 1998.
<TABLE>
<CAPTION>
December 31,
1997 1998
<S> <C> <C>
Money market $ 71,000 $ 924,000
U.S. Government debt securities 12,391,000 2,441,000
----------- ----------
$12,462,000 $3,365,000
=========== ==========
</TABLE>
The following is a summary of available-for-sale marketable securities held
by the Company at December 31, 1997 and 1998 which are carried at fair
market value:
<TABLE>
<CAPTION>
Unrealized Unrealized Amortized
Maturity term Fair Value gains losses cost
<S> <C> <C> <C> <C> <C>
December 31, 1997:
U.S. Government debt
securities within 1 year $10,935,000 $5,000 $(1,000) $10,931,000
U.S. Government debt
securities between 1-5 years 5,257,000 2,000 -- 5,255,000
----------- ------ ------- -----------
$16,192,000 $7,000 $(1,000) $16,186,000
=========== ====== ======= ===========
December 31, 1998:
U.S. Government debt
securities within 1 year $12,727,000 $6,000 $(1,000) $12,722,000
=========== ====== ======= ===========
</TABLE>
All of the Company's marketable securities are classified as current at
December 31, 1997 and 1998 as these funds are highly liquid and are
available to meet working capital needs and to fund current operations.
Gross realized gains and losses on sales of marketable securities for the
years ended December 31, 1997 and 1998 were not significant.
Marketable securities which were purchased and sold in periods prior to
adoption of SFAS No. 115 on January 1, 1994 other than held-to-maturity
marketable securities, are included in the category available-for-sale
marketable securities in the "period from inception" column of the
statement of cash flows.
F-9
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
4.Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Estimated
useful life December 31,
(years) 1997 1998
<S> <C> <C> <C>
Laboratory equipment 2-5 $1,359,000 $1,394,000
Office equipment 4-5 425,000 434,000
Leasehold improvements 5-7 461,000 461,000
---------- ----------
2,245,000 2,289,000
Less--accumulated depreciation and
amortization 1,185,000 1,751,000
---------- ----------
$1,060,000 $ 538,000
========== ==========
</TABLE>
Depreciation and amortization expense relating to fixed assets was
$961,000, $960,000 and $567,000 for the years ended December 31, 1996, 1997
and 1998, respectively. Assets held under capital leases consisted of
$1,243,000 of laboratory equipment at December 31, 1997 and 1998.
Accumulated amortization of these assets totaled $765,000 and $1,072,000 at
December 31, 1997 and 1998, respectively. For the years ended December 31,
1996, 1997 and 1998, amortization expense charged to operations on assets
held under capital lease obligations was $630,000, $552,000 and $307,000,
respectively. In 1997, fixed assets totaling $2,931,000 were disposed of or
sold, of which $1,642,000 were held under capital leases. Accumulated
depreciation and amortization relating to these assets was $923,000 and
$1,341,000, respectively. Proceeds totaling $64,000 and $1,000 were
received upon the sale of certain equipment in 1997 and 1998, respectively.
5. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
1997 1998
<S> <C> <C>
Accrued employee costs $289,000 $322,000
Accrued professional 204,000 217,000
Accrued restructuring 146,000 --
Other 25,000 --
-------- --------
$664,000 $539,000
======== ========
</TABLE>
6. Related Party Transactions
In connection with the formation of the Company and the issuance of 168,750
shares of common stock and 168,750 shares of junior convertible preferred
stock to The Brigham and Women's Hospital ("BWH"), the Company entered into
related technology transfer and research and development agreements with
BWH. The technology transfer agreement provides the Company with all rights
and interests in certain BWH patented technology in exchange for the
issuance of the aforementioned stock and the payment of royalties under
certain conditions. The research and development agreement provides that
certain research activities are performed by BWH on behalf of the Company.
F-10
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
The current research and development agreement terminates in June 2000. The
agreement provides for automatic two-year renewal periods, subject to the
Company's and BWH's mutual agreement annually, with respect to the budget
for research to be performed and related minimum payments made to BWH for
each following year. The Company has agreed to pay BWH minimum payments
totaling $537,000 for the one-year period ending June 30, 1999. There is no
guaranteed minimum payment for the one-year period ending June 30, 2000.
This agreement also provides for payments to BWH for royalties on sales of
related patented products by the Company, as well as for payments to BWH
for a portion, as defined in the agreement, of any proceeds received by the
Company in connection with the licensing of patented technology to, and
royalty or milestone payments received from, third parties. Royalty
payments to BWH begin upon the commercialization of the related products
and will continue for the life of the underlying patent. For a period not
to exceed three years after the first commercial sale of any product of the
Company, the Company is required to make payments to BWH in each quarter
only to the extent that the Company has a positive cash flow in such
quarter with the balance deferred to the succeeding quarter. Deferred
payments will be subject to interest. If the Company defaults in the
payment of any amount due to BWH, BWH will have an option to purchase all
technology developed under the research program at a purchase price equal
to the sum of all amounts previously paid by the Company to BWH.
In addition, certain expenses are paid by the Company for research
conducted at BWH.
7.Income Taxes
The components of deferred income tax benefit are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1997 1998
<S> <C> <C> <C>
Income tax benefit:
Federal $ 9,328,000 $ 7,809,000 $ 4,557,000
State 1,964,000 1,821,000 1,262,000
------------ ----------- -----------
11,292,000 9,630,000 5,819,000
Deferred tax asset valuation
allowance (11,292,000) (9,630,000) (5,819,000)
------------ ----------- -----------
$ -- $ -- $ --
============ =========== ===========
</TABLE>
No significant federal or state taxes were payable in any years as a result
of losses incurred and utilization of net operating losses and credits.
F-11
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
A reconciliation between the amounts of reported income tax (expense)
benefit and the amount determined by applying the U.S. federal statutory
rate of 35% for 1996, 1997 and 1998 to pre-tax loss is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1997 1998
<S> <C> <C> <C>
Loss at statutory rate $ 8,219,000 $ 6,134,000 $ 4,615,000
Nondeductible research and
development expenses (1,015,000) (1,190,000) (265,000)
Federal and state research and
development, orphan drug, and
investment tax credits 3,184,000 3,576,000 843,000
State tax benefit, net of federal tax
liability 991,000 1,009,000 735,000
Stock option compensation 136,000 126,000 22,000
Utilization of net operating losses (203,000) -- --
Other (20,000) (25,000) (131,000)
------------ ----------- -----------
11,292,000 9,630,000 5,819,000
Benefit of loss not recognized,
increase in valuation allowance (11,292,000) (9,630,000) (5,819,000)
------------ ----------- -----------
$ -- $ -- $ --
============ =========== ===========
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1997 1998
<S> <C> <C>
Research costs capitalized for tax purposes $ 16,346,000 $ 21,087,000
Research and development, orphan drug and
investment tax credits 9,905,000 10,749,000
Loss carryforwards 15,561,000 15,792,000
Net unrealized gain on investments available-for-
sale (2,000) (2,000)
Other temporary differences 79,000 82,000
------------ ------------
Gross deferred tax assets 41,889,000 47,708,000
Deferred tax asset valuation allowance (41,889,000) (47,708,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
The Company has provided a full valuation allowance for net deferred tax
assets since the realization of these future benefits is not sufficiently
assured as of the end of each related year. As the Company achieves
profitability, these deferred tax assets will be available to offset future
income tax liabilities and expenses. Of the $47,708,000 valuation allowance
at December 31, 1998, $618,000 relating to deductions for stock option
compensation will be credited to additional paid-in capital upon
realization.
F-12
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
At December 31, 1998, the Company had the following net operating loss,
research and development, orphan drug and investment tax credit
carryforwards available to reduce future tax liabilities, which expire as
follows:
<TABLE>
<CAPTION>
Research and development,
Net operating orphan drug and investment
Year of expiration loss carryforward tax credit carryforwards
<S> <C> <C>
2003 $ 19,000
2004 91,000
2005 121,000
2006 162,000
2007 234,000
2008 420,000
2009 $ 43,000 960,000
2010 728,000
2011 3,895,000
2012 38,859,000 3,670,000
2018 578,000 888,000
----------- -----------
$39,480,000 $11,188,000
=========== ===========
</TABLE>
Ownership changes, as defined in the Internal Revenue Code, resulting from
the Company's initial public offering of stock in January 1993 and
subsequent follow-on offerings in 1995, had no impact on the amount of net
operating loss and tax credit carryforwards that can be utilized annually
to offset future taxable income or tax liabilities. Subsequent significant
ownership changes could, however, limit the utilization of these
carryforwards in future years.
8.Preferred Stock
Upon the closing of the Company's initial public offering on January 27,
1993 each share of Series A, B and C convertible preferred stock
automatically converted into three shares of common stock (Note 9). No
dividends had been paid to the preferred stockholders.
At December 31, 1998, the Company had authorized 5,000,000 shares of $.01
par value preferred stock. Preferred stock may be issued at the discretion
of the Board of Directors of the Company (without stockholder approval)
with such designations, rights and preferences as the Board of Directors
may determine from time to time. The preferred stock may have dividend,
liquidation, redemption, conversion, voting or other rights which may be
more expansive than the rights accorded to the common stock.
On May 17, 1995, the Company's Board of Directors adopted a shareholder
rights plan. The Board declared a distribution of one right for each share
of common stock outstanding on June 1, 1994. Stock issued after that date
will be issued with an attached right. Each right will entitle the holder,
upon the occurrence of certain events, to purchase 1/100th of a share of
preferred stock at an exercise price of $73. The Board may, at any time,
redeem the rights until their expiration on June 1, 2005, and may amend the
rights under certain circumstances until they become exercisable.
F-13
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
9.Stockholders' Equity and Common Stock
In December 1992, the Company effected a three-for-one stock split of the
Company's common stock in the form of a stock dividend. All common shares
and per share amounts have been adjusted to give retroactive effect to the
common stock split for all years presented.
In January 1993, the Company completed its initial public offering of
3,000,000 shares of common stock. Proceeds to the Company, net of issuance
costs, amounted to $35,690,000.
In January 1995, the Company completed a private placement of 2,039,547
shares of common stock. Proceeds to the Company, net of issuance costs,
amounted to $9,136,000.
In August and September 1995, the Company completed its second public
offering of 3,925,000 shares of common stock. Proceeds to the Company, net
of issuance costs, amounted to $58,878,000.
As of December 31, 1998, the Company has reserved 3,560,194 shares of
common stock for use in the Company's stock option plans and employee stock
purchase plan (Note 10).
10.Stock Option and Employee Stock Purchase Plans
1988 Stock Option Plan
The Company's 1988 Stock Option Plan (the "1988 Stock Option Plan"), as
amended effective May 15, 1996, provided for the granting of incentive
stock options and non-qualified stock options to employees and other
individuals performing services on behalf of the Company. The Compensation
Committee (the "Committee"), appointed by the Board of Directors, is
responsible for the administration of the 1988 Stock Option Plan. The
Committee determined the term of each option, option price, number of
shares for which each option was granted, whether restrictions were imposed
on the shares subject to options and the rate at which each option becomes
exercisable. During 1997, the Board of Directors increased the maximum
number of shares of common stock of the Company reserved for issuance in
accordance with the terms of the 1988 Stock Option Plan from 3,100,000 to
3,700,000.
On June 19, 1997, the Company repriced 338,850 options with exercise prices
ranging from $4.88 to $16.38 per share to 254,138 options at a price of
$2.00 per share. Employees had the option not to reprice certain options
previously granted. The repriced options were subject to the same vesting
schedule as the previous options except that any vesting would be forfeited
unless the optionee remains in the Company's employ through June 19, 1998.
The 1988 Stock Option Plan expired on September 19, 1998.
1998 Stock Option Plan
The Company's 1998 Stock Option Plan (the "1998 Stock Option Plan"),
adopted by the shareholders on May 28, 1998, provides for the granting of
incentive stock options and non-qualified stock options to employees,
directors and other individuals performing services on behalf of the
Company. The Committee is responsible for the administration of the 1998
Stock Option Plan. The Committee determines the term of each option, option
price, number of shares for which each option is granted, whether
restrictions will be imposed on the shares subject to options and the rate
at which each option is exercisable. The exercise price for stock options
granted may not be less than 100% of the fair market value per share of the
underlying common stock on the date granted (110% for options granted to
holders of more than 10% of the voting stock of the Company). The term of
options granted under the 1998 Stock Option Plan cannot exceed ten
F-14
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
years (five years for options granted to holders of more than 10% of the
voting stock of the Company). The maximum number of shares of common stock
of the Company reserved for issuance in accordance with the terms of the
1998 Stock Option Plan is 1,300,000.
Director Stock Option Plan
During 1993, the Company's Board of Directors approved a stock option plan
for non-employee directors (the "Director Option Plan"). This plan was
approved by the Company's shareholders in 1994 and an amendment to the plan
was approved by the shareholders on May 15, 1996. Under the original
Director Option Plan, each director who was eligible to participate in the
plan on May 19, 1993 received, at fair market value on the date of grant,
options to purchase 4,000 shares of common stock. Under the amended
Director Option Plan, upon the first election of a non-employee to the
Board of Directors, the director shall receive an option to purchase 25,000
shares of common stock and will receive options to purchase an additional
6,500 shares of common stock every year thereafter if the individual
remains a member of the Board of Directors. In addition, an option to
purchase 1,000 shares of common stock was granted to each director who was
a member of a standing committee of the Board of Directors on May 19, 1993.
An option for 1,000 shares will be granted automatically to each member of
a standing committee following his first election to each such committee,
and options to purchase 1,000 additional shares will automatically be
granted every four years thereafter for each standing committee of which
the individual remains a member. Options to purchase 129,500 shares of
common stock have been granted under this plan. A maximum of 300,000 shares
of common stock of the Company is reserved for issuance in accordance with
the terms of this amended plan.
A summary of option activity under the Stock Option Plans and the Director
Option Plan for the years ended December 31, 1996, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
Weighted average
Shares exercise price
<S> <C> <C>
Outstanding at December 31, 1995 2,167,636 $ 4.24
Granted (weighted average fair value $5.90) 264,800 10.41
Exercised (45,100) 4.52
Cancelled (30,825) 8.75
----------
Outstanding at December 31, 1996 2,356,511 4.87
Granted (weighted average fair value $2.97) 1,218,608 5.19
Exercised (31,198) 2.72
Cancelled (1,479,356) 9.47
----------
Outstanding at December 31, 1997 2,064,565 1.85
Granted (weighted average fair value $1.51) 187,800 2.77
Exercised (129,688) 1.39
Cancelled (184,643) 3.27
----------
Outstanding at December 31, 1998 1,938,034 1.83
==========
Options exercisable at year end 1,326,530 $ 1.56
==========
</TABLE>
F-15
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
As of December 31, 1996 and 1997, 1,214,336 and 1,203,539 options were
exercisable, respectively, under the 1988 Stock Option Plan and Director
Option Plan.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------- --------------------------
Weighted
average Weighted Weighted
Range of Number remaining average Number average
exercise prices outstanding contractual life exercise price Exercisable exercise price
<S> <C> <C> <C> <C> <C>
$ .03 293,500 2.2 years $ .03 293,500 $ .03
$1.33-$ 2.00 1,319,798 5.8 years 1.61 939,194 1.50
$2.06-$ 3.06 228,000 9 years 2.74 15,675 2.64
$5.25-$ 7.75 39,736 5.8 years 5.89 38,411 5.84
$8.13-$10.88 57,000 6.3 years 9.75 39,750 9.52
--------- ---------
1,938,034 1,326,530
========= =========
</TABLE>
Employee Stock Purchase Plan
On July 20, 1994, the Board of Directors approved the 1994 Employee Stock
Purchase Plan (the "Purchase Plan"). This plan enables eligible employees
to purchase the Company's common stock at 85% of the fair market value of
the stock on the date an offering commences or on the date an offering
terminates, whichever is lower. The Purchase Plan is available to
substantially all employees, subject to certain limitations. An eligible
employee may elect to have up to 12% of his or her base pay withheld and
applied toward the purchase of shares in such an offering (not to exceed
$25,000 in any year). At December 31, 1998, 158,160 shares of common stock
were reserved for purchases under the Purchase Plan. During 1997 and 1998,
3,653 and 26,411 shares were purchased under the Purchase Plan at an
average price of $2.12 and $1.59 per share, respectively.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic based
method prescribed in APB No. 25. The Company has adopted the disclosure-
only provisions of SFAS No. 123. Accordingly, no compensation cost has been
recognized for the Company's stock option plans and employee stock purchase
plan. Had compensation cost been determined based on the fair value at the
grant dates for awards in 1996, 1997 and 1998 consistent with the
provisions of SFAS No. 123, the Company's net loss and net loss per share
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1997 1998
<S> <C> <C> <C>
Net loss:
As reported $(23,484,000) $(17,525,000) $(13,185,000)
Pro forma (24,540,000) (18,059,000) (13,989,000)
Net loss per share--basic and
diluted:
As reported $ (1.44) $ (1.07) $ (0.80)
Pro forma (1.51) (1.10) (0.85)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996, 1997 and 1998: no dividend yield for
all years; expected volatility of 65%, 65% and 62%, respectively; risk free
interest rates ranging from 4.9% to 7.4% and a weighted average expected
option term ranging from 3 to 6.5 years for
F-16
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
options granted during all years. Because additional option grants are
expected to be made each year, the pro forma impact on the three years
ended December 31, 1998 is not representative of the pro forma effects
which may be expected in future years.
11.Accumulated Other Comprehensive Income
In the first quarter of 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. This statement requires disclosure of comprehensive
income and its components in interim and annual reports. Comprehensive
income includes all changes in stockholders' equity during a period except
those resulting from investments by stockholders and distributions to
stockholders. Accordingly, the components of comprehensive income include
net income and unrealized gains and losses on available-for-sale
securities.
Net unrealized loss on marketable securities is comprised of the following:
<TABLE>
<CAPTION>
For the period
January 1, 1994
through December 31,
1995 1996 1997 1998
<S> <C> <C> <C> <C>
Unrealized holding gain
(loss) arising during the
period $69,000 $(13,000) $ (6,000) $ 5,000
Reclassification adjustment
for (gain) loss included
in net income -- (22,000) (22,000) (6,000)
------- -------- -------- -------
Net unrealized gain (loss)
on marketable securities $69,000 $(35,000) $(28,000) $(1,000)
======= ======== ======== =======
</TABLE>
12.Employee Savings Plan
In 1993, the Company initiated an employee savings plan (the "401(k) Plan")
under Section 401(k) of the Internal Revenue Code. The 401(k) Plan is
available to substantially all employees. The Company has made no
contributions to the 401(k) Plan since inception.
13.Restructuring Costs
In the second quarter of 1997, the Company recorded $3,307,000 of
restructuring costs as a result of a corporate downsizing. This charge
consisted of severance costs of $1,009,000 for 53 employees; lease costs of
$1,510,000; equipment disposal and write-offs of $531,000; and the
termination of certain contractual requirements of $257,000. During the
third quarter of 1997, this estimated charge was adjusted to $2,251,000 to
reflect the sublease of 22,000 square feet of space and actual costs
incurred. The adjusted charge consists of severance costs of $1,138,000 for
53 employees; lease costs of $261,000; equipment disposal and write-offs of
$599,000; and the termination of certain contractual requirements of
$253,000. As of December 31, 1998, all restructuring costs had been paid.
14.Commitments and Contingencies
Clinical Research Agreement
The Company entered into an agreement with CATO Research ("CATO"),
effective June 1993, to have a clinical investigational study performed on
the Company's multiple sclerosis product. The agreement allowed for
termination by either the Company or CATO, upon prior written notice. In
1997, the Company
F-17
<PAGE>
AutoImmune Inc.
(a development stage company)
Notes to the Financial Statements
terminated the agreement, therefore CATO was entitled to a termination fee
totaling $257,000. Additionally, CATO was granted a warrant to purchase
30,000 shares of common stock of the Company at $10.50 per share which
expires in June 2003. In 1998, the warrant to purchase 10,000 shares became
exercisable upon the achievement of a specific milestone. The value
ascribed to these shares was not significant. Given the uncertainty
surrounding the achievement of the final milestone, the estimated fair
value of the remaining contingent stock purchase warrants to purchase
20,000 shares of common stock of the Company cannot be reasonably
determined at December 31, 1998.
License Agreements
In December 1994, the Company entered into a license agreement with Eli
Lilly and Company ("Lilly"). Under the agreement, Lilly provided support
for clinical testing of the Company's autoimmune mediated (Type 1) diabetes
product in exchange for certain worldwide license rights for the
manufacture, distribution and sale of the related products. This agreement
was terminated in the first quarter of 1999 as a result of Lilly's failure
to make a required milestone payment. Lilly is obligated to complete the
trials now underway and to provide the Company with full access to the data
therefrom, including the right to use the data for any purpose. The Company
has regained all rights to the product.
Leases
The Company leases its facilities under an operating lease which runs
through November 1999 and includes renewal clauses. The operating lease for
facilities provides for monthly rental payments and estimated monthly
operating charges which cover building maintenance costs and real estate
taxes. On November 1, 1997, the Company exercised its option to sublease
22,000 square feet of the 33,000 square feet total through the end of the
lease term. In 1997 and 1998, the Company received rent payments from the
subtenant totaling $52,000 and $211,000, respectively. Effective October 1,
1998, the sublease agreement was terminated and concurrently, the Company's
operating lease was amended to include only the approximately 11,000 square
feet occupied by the Company.
Total rent expense was $421,000, $507,000 and $149,000 for the years ended
December 31, 1996, 1997 and 1998, respectively. Future minimum lease
commitments due under the non-cancelable operating lease, which expires in
November 1999, total $161,000.
During 1997, the Company disposed of equipment under various leases entered
into prior to 1997 and combined the remaining assets from those various
leases into one lease agreement. The term for the combined lease under the
agreement is twenty-four months and bears interest at a rate determined on
the lease date. Future minimum lease commitments due under the non-
cancelable capital lease obligation, which expires in 1999, total $194,000,
of which $1,000 represents interest. The Company is required to meet
certain financial covenants during the lease term. If the Company violates
any of the covenants the lessor may require additional cash collateral, not
to exceed the amount of the remaining balance.
F-18
<PAGE>
EXHIBIT 10.26
* * * * *
PORTIONS OF THIS EXHIBIT HAVE BEEN
OMITTED AND FILED SEPARATELY WITH
THE COMMISSION PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT
UNDER RULE 24(B)-2. THE LOCATION OF
THOSE OMITTED PORTIONS IS DENOTED
BY BRACKETS.
* * * * *
DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
AUTOIMMUNE INC.
AND
TEVA PHARMACEUTICAL INDUSTRIES LTD.
DATED AS OF DECEMBER 4, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. DEFINITIONS.................................................................................. 2
1.1 "Affiliate".................................................................................. 2
1.2 "AutoImmune Product"......................................................................... 2
1.3 "AutoImmune Synergist Technology"............................................................ 2
1.4 "AutoImmune Technology"...................................................................... 2
1.5 "Development Phase".......................................................................... 2
1.6 "Effective Date"............................................................................. 2
1.7 "FDA"........................................................................................ 3
1.8 "Field"...................................................................................... 3
1.9 "Final Marketing Approval"................................................................... 3
1.10 "First Commercial Sale"...................................................................... 3
1.11 "Improvements"............................................................................... 3
1.12 "Licensed Products".......................................................................... 3
1.13 "MG peptides"................................................................................ 3
1.14 "Net Sales".................................................................................. 3
1.15 "Oral Tolerance Technology".................................................................. 4
1.16 "Patent Rights".............................................................................. 4
1.17 "Sublicense"................................................................................. 4
1.18 "Synergist Technology"....................................................................... 4
1.19 "Third Party"................................................................................ 5
1.20 "Valid Claim"................................................................................ 5
ARTICLE 2. LICENSE GRANTS............................................................................... 5
2.1 Grant of License Rights by AutoImmune to Teva................................................ 5
2.2 Sublicenses.................................................................................. 5
2.3 Reserved Rights of the U.S. Government and Brigham & Women's Hospital........................ 6
2.4 Sales Obligations............................................................................ 6
2.5 Teva's Rights................................................................................ 6
2.6 Sales Price.................................................................................. 6
2.7 Co-Promotional Rights........................................................................ 6
2.8 No Other Technology Rights................................................................... 6
2.9 AutoImmune Synergist Technology.............................................................. 7
2.10 AutoImmune Information Exchange; Reports..................................................... 7
ARTICLE 3. EFFORTS DURING DEVELOPMENT PHASE............................................................. 7
3.1 Diligent Efforts of Teva..................................................................... 7
3.2 Teva Information Exchange, Reports........................................................... 8
3.3 Right to Use Data............................................................................ 9
3.4 Availability of Employees and Consultants.................................................... 9
3.5 Attendance at Regulatory Meetings............................................................ 9
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 4. PAYMENTS..................................................................................... 9
4.1 Milestone Payments........................................................................... 10
4.2 Royalties.................................................................................... 11
4.2.1 Royalty Calculation................................................................... 11
4.2.2 [caption omitted]..................................................................... 11
4.2.3 Royalty Reports, Exchange Rates....................................................... 11
4.2.4 Audits................................................................................ 12
4.2.5 Foreign Royalties..................................................................... 12
4.2.6 Withholding Taxes..................................................................... 12
4.2.7 Interest on Late Payments............................................................. 13
4.3 Sublicenses.................................................................................. 13
ARTICLE 5. INTELLECTUAL PROPERTY........................................................................ 13
5.1. Filing, Prosecution and Maintenance of Patent Rights......................................... 13
5.1.1 Prosecution and Maintenance........................................................... 13
5.1.2 Abandonment; Failure to Pay........................................................... 14
5.1.3 Cooperation........................................................................... 14
5.2 Infringement by Others....................................................................... 15
5.2.1 Prosecution by AutoImmune............................................................. 15
5.2.2 Prosecution by Teva................................................................... 15
5.3 Declaratory Actions.......................................................................... 15
5.4 Infringement Action Against Teva or AutoImmune............................................... 16
5.5 Cooperation.................................................................................. 16
5.6 Improvements................................................................................. 16
ARTICLE 6. CONFIDENTIALITY.............................................................................. 17
6.1 Nondisclosure Obligations.................................................................... 17
6.1.1 General............................................................................... 17
6.1.2 Limitations........................................................................... 17
6.2 Terms of this Agreement...................................................................... 18
6.3 Publications................................................................................. 18
6.3.1 Procedure............................................................................. 18
6.3.2 Delay................................................................................. 19
6.3.3 Resolution............................................................................ 19
6.3.4 Non-Derogation........................................................................ 19
6.4 Prohibition.................................................................................. 19
6.5 Injunctive Relief............................................................................ 19
ARTICLE 7. REPRESENTATIONS AND WARRANTIES............................................................... 19
7.1 Mutual Representations....................................................................... 19
7.1.1 Organization.......................................................................... 20
7.1.2 Authorization......................................................................... 20
7.1.3 Binding Agreement..................................................................... 20
7.1.4 No Inconsistent Obligation............................................................ 20
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
7.1.5 Inequitable Conduct.................................................................... 20
7.1.6 Non-Infringement....................................................................... 20
7.1.7 Title.................................................................................. 20
7.1.8 Disclosure............................................................................. 20
7.2 Limitations................................................................................... 21
7.2.1 Disclaimer of Warranty................................................................. 21
7.2.2 Disclaimer of Certain Damages.......................................................... 21
7.2.3 Further Limitations.................................................................... 22
ARTICLE 8. INDEMNITY..................................................................................... 23
8.1 Teva Indemnity Obligations.................................................................... 23
8.2 AutoImmune Indemnity Obligations.............................................................. 23
8.3 Procedure..................................................................................... 23
8.4 Insurance..................................................................................... 24
8.5 Limitation.................................................................................... 24
ARTICLE 9. EXPIRATION AND TERMINATION.................................................................... 25
9.1 Expiration.................................................................................... 25
9.2 Termination................................................................................... 25
9.2.1 Termination by Either Party............................................................. 25
9.2.2 Termination by AutoImmune............................................................... 25
9.3 Survival...................................................................................... 25
9.4 Non-Limitation of Rights...................................................................... 25
ARTICLE 10. MISCELLANEOUS................................................................................. 26
10.1 Force Majeure................................................................................. 26
10.2 Assignment.................................................................................... 26
10.3 Severability.................................................................................. 26
10.4 Notices....................................................................................... 27
10.5 Applicable Law................................................................................ 28
10.6 Dispute Resolution............................................................................ 28
10.6.1 Good Faith Attempt to Resolve......................................................... 28
10.6.2 Mediation............................................................................. 28
10.6.3 Arbitration........................................................................... 28
10.6.4 Right to Seek Injunctive Relief....................................................... 29
10.6.5 No Other Proceedings.................................................................. 29
10.7 Public Announcements.......................................................................... 29
10.8 Entire Agreement.............................................................................. 29
10.9 Headings...................................................................................... 29
10.10 Independent Contractors....................................................................... 29
10.11 Agreement Not to Solicit...................................................................... 30
10.12 Exports....................................................................................... 30
10.13 Waiver........................................................................................ 30
10.14 Counterparts.................................................................................. 30
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
10.15 Interpretation................................................................................ 30
10.16 Identification of Patent Rights; Patent Marking............................................... 30
10.17 Taxes......................................................................................... 31
</TABLE>
Exhibit A - List of Patent Rights
Exhibit B - Royalty Rates
Exhibit C - Royalty Calculation Examples
Exhibit D - Synergist Patent Rights
Exhibit E - List of MG Peptides
-iv-
<PAGE>
DEVELOPMENT AND LICENSE AGREEMENT
THIS DEVELOPMENT AND LICENSE AGREEMENT dated as of December 4, 1998 (the
"Agreement") is made between AUTOIMMUNE INC., a Delaware corporation having its
principal place of business at 128 Spring Street, Lexington, Massachusetts
02421, U.S.A. ("AutoImmune"), and TEVA PHARMACEUTICAL INDUSTRIES LTD, an Israeli
corporation having its principal place of business at Basel 5, Petah Tiqva
49131, Israel ("Teva").
RECITALS
1. AutoImmune is a biopharmaceutical company that develops drug therapies
for the treatment of inflammatory diseases. AutoImmune's therapeutic approach
is based on oral tolerance induction, a method of controlling a variety of
immune-related disorders through the use of the body's natural immunosuppressive
mechanisms.
2. During the course of its work in the area of inflammatory disease
research, AutoImmune has developed certain proprietary technology related to
methods and formulations for treating diseases such as multiple sclerosis and
myasthenia gravis.
3. AutoImmune is interested in licensing this technology for use in the
Field (as hereinafter defined) to a third party which can maximize its potential
by conducting clinical trials necessary to obtain approval from appropriate
governmental regulatory authorities of products embodying such technology, and
then producing and selling such products on a worldwide basis.
4. Teva is a pharmaceutical company that manufactures and sells products
on a worldwide basis for treating certain diseases, including multiple
sclerosis. Furthermore, in addition to its manufacturing and sales efforts,
Teva also has a comprehensive research effort directed towards finding new
therapeutic approaches for treating these diseases.
5. Teva is interested in obtaining an exclusive, worldwide license to
AutoImmune's technology in the Field.
6. AutoImmune is willing to grant such a license upon the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the premises and of the covenants
herein contained, the parties hereto mutually agree as follows:
<PAGE>
ARTICLE 1. DEFINITIONS
1.1 "Affiliate" shall mean any corporation or other entity which directly
or indirectly controls, is controlled by or is under common control with a party
to this Agreement. A corporation or other entity shall be regarded as in
control of another corporation or entity if, for example, it owns or directly or
indirectly controls more than fifty (50%) of the voting stock or other ownership
interest of the other corporation or entity or the power to elect or appoint
more than fifty percent (50%) of the members of the governing body of the
corporation or other entity. "Affiliate" shall not mean any corporation or other
entity (i) as to which a party directly or indirectly owns fifty percent (50%)
or less of the voting stock or other ownership interest of the corporation or
other entity and has the power to elect or appoint fifty percent (50%) or less
of the members of the governing body of the corporation or other entity and (ii)
the governing body of the corporation or other entity has the sole power and
authority to determine the terms and conditions for the sale of the corporation
or other entity's products, so long as, with respect to Teva, sales of Licensed
Products by Teva or its Affiliates to a corporation or other entity in which
Teva owns 50% or less of the voting stock and has the power to elect or appoint
50% or less of the members of the governing body are on bona fide arm's length
terms.
1.2 "AutoImmune Product" shall mean any product, or any method or process
used in the manufacture or administration of such product, sold by AutoImmune,
its Affiliates and/or its or their Sublicensees which utilizes Improvements or
as to which final approval of the governing health authority (including pricing
approval where needed) to market the product in a country was obtained through
use of information or data licensed by Teva pursuant to Section 3.3.
1.3 "AutoImmune Synergist Technology" shall mean all methods or
formulations that incorporate or use an agent in combination with a Licensed
Product to increase the efficacy of a Licensed Product and that are within the
claims of patents or applications set forth on Exhibit D hereto.
1.4 "AutoImmune Technology" shall mean all present and future unpatented
or unpatentable inventions, trade secrets, copyrights, know-how, data,
regulatory submissions and other intellectual property of any kind owned or
controlled by, or licensed (with the right to sublicense) to, AutoImmune and/or
its Affiliates necessary or useful for the manufacture, use or sale of the
Licensed Products, but shall not include AutoImmune Synergist Technology.
1.5 "Development Phase" shall mean for each Licensed Product the period
commencing on the Effective Date and continuing until Final Marketing Approval
for the Licensed Product has been obtained in any country.
1.6 "Effective Date" shall mean the date first written above.
-2-
<PAGE>
1.7 "FDA" shall mean the United States Food and Drug Administration.
1.8 "Field" shall mean treatment of multiple sclerosis and/or myasthenia
gravis and/or all other uses of glatiramer acetate and/or MG peptides.
1.9 "Final Marketing Approval" shall mean final approval of the governing
health authority to market (including pricing approval where needed) a Licensed
Product in a country.
1.10 "First Commercial Sale" shall mean the first sale for use or
consumption by the general public of a Licensed Product based on the required
marketing and pricing approval granted by the governing health authority of that
country.
1.11 "Improvements" shall mean all inventions, whether or not patentable,
information, know-how and data of any kind owned or controlled by, or licensed
(with the right to sublicense) to, Teva which has been developed during the term
of this Agreement for use in connection with Oral Tolerance Technology, but
shall not include Synergist Technology unless and to the extent that Teva has
obtained the rights from the licensee to AutoImmune Synergist Technology as
contemplated by Section 2.9.
1.12 "Licensed Products" shall mean any orally or mucosally-administered
product in the Field, or any method of making or using such a product, (a)
which, but for the license granted herein, would be within a Valid Claim of a
pending patent application included in the Patent Rights or which would infringe
a Valid Claim of an issued patent included in the Patent Rights or (b) which
utilizes AutoImmune Technology or (c) which involves glatiramer acetate and/or
MG peptides for treatment of (i) multiple sclerosis or (ii) any other disease
utilizing Oral Tolerance Technology.
1.13 "MG peptides" shall mean those peptides, treatments, compositions and
processes disclosed in the patents and patent applications identified in Exhibit
E annexed hereto and in future patents or applications owned or controlled by or
licensed to Teva and/or its Affiliates as well as fragments and analogs thereof
and technology related thereto.
1.14 "Net Sales" shall mean the gross ex-works invoice sales price for the
Licensed Products sold by Teva, its Affiliates and/or its and their Sublicensees
less (i) customs duties and sales taxes (including value added tax), if any,
related to the sale of the Licensed Products separately stated on the invoice,
(ii) any amounts allowed by reason of rejections and return of goods in respect
of the Licensed Products; (iii) all customary and reasonable trade, cash, or
quantity credits and/or cash discounts and/or retroactive price reductions
relating to the Licensed Products; (iv) amounts to be deducted resulting from
any bona fide refunds, rebate programs,
-3-
<PAGE>
third party rebates and chargebacks related to the sale of the Licensed
Products; and (v) royalties paid by Teva and/or its Affiliates to Third Parties
under licenses of intellectual property rights, which licenses are required, in
the opinion of Teva's counsel, in order to avoid infringment of the Third
Party's rights as a result of the practice by Teva and/or its Affiliates of the
rights granted by AutoImmune under Section 2.1. The transfer of the Licensed
Products by Teva or one of its permitted Sublicensees to (i) an Affiliate of
Teva or (ii) another permitted Sublicensee of Teva shall not be considered a
sale; in such cases, Net Sales shall be determined based on the invoiced sales
price by the Affiliate or permitted Sublicensee to its customer, less the
deductions allowed under this Section. Every other commercial use or
disposition of Licensed Products by Teva or, to the extent permitted under
Article 2, by permitted Sublicensees of Teva, other than reasonable quantities
of promotional samples or bona fide sale to a bona fide customer shall be
considered a sale of the Licensed Products at the weighted average Net Sales
price then being invoiced by the seller in arm's length transactions.
1.15 "Oral Tolerance Technology" means all methods or formulations which
are useful for treating or in preparing a formulation for treating inflammatory
disorders by mucosal administration of an antigen, autoantigen, or fragment,
derivative or analog thereof derived from or incorporating AutoImmune
Technology.
1.16 "Patent Rights" shall mean the United States and foreign patent
applications set forth in Exhibit A hereto; any other United States and foreign
patent applications owned or controlled by, or licensed (with the right to
sublicense) to, AutoImmune and/or its Affiliates during the term of this
Agreement necessary or useful for the manufacture, use or sale of Licensed
Products; any division, continuation or continuation-in-part of any such
applications; any foreign patent applications corresponding to any such patent
applications; and any U.S. or foreign patents or the equivalent thereof issuing
thereon or any reissue or extension thereof; provided, however, that Patent
Rights shall not include AutoImmune Synergist Technology.
1.17 "Sublicense" shall mean the grant by Teva or AutoImmune to a Third
Party of the rights granted to AutoImmune or Teva under this Agreement to
manufacture and sell to Third Parties Licensed Products. For purposes of this
Agreement, formulating a Licensed Product only shall be deemed to also mean
manufacture of the Licensed Product. A "Sublicensee" shall mean any Third Party
to which a Sublicense is granted.
1.18 "Synergist Technology" shall mean all methods or formulations that
incorporate or use an agent in combination with a Licensed Product to increase
the efficacy of a Licensed Product owned or controlled by or licensed to Teva
and/or its Affiliates.
-4-
<PAGE>
1.19 "Third Party" shall mean any entity other than AutoImmune or Teva and
their respective Affiliates.
1.20 "Valid Claim" shall mean either (a) a claim of an issued and unexpired
patent which has not been held permanently revoked, unenforceable or invalid or
not to encompass glatiramer acetate-like substances or MG peptide-like
substances by a decision of a court or other governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal, and
which has not been admitted to be invalid or unenforceable through reissue or
disclaimer or otherwise or (b) a claim of a pending patent application which
claim was filed in good faith and has not been abandoned or finally disallowed
without the possibility of appeal or refiling of said application.
ARTICLE 2. LICENSE GRANTS
2.1 GRANT OF LICENSE RIGHTS BY AUTOIMMUNE TO TEVA. Subject to the
provisions of Section 2.3 and Section 5.1.2, AutoImmune hereby grants to Teva
(a) the sole exclusive worldwide right and license under the Patent Rights and
AutoImmune Technology to use, manufacture, have manufactured, distribute for
sale and sell orally-administered Licensed Products for use in the Field and (b)
a non-exclusive worldwide right and license under the Patent Rights and
AutoImmune Technology to use, manufacture, distribute for sale and sell
mucosally-administered Licensed Products for use in the Field which are not
covered by the license in subclause (a) above. If following the Effective Date
AutoImmune and/or its Affiliates develops or licenses any invention, trade
secret, copyrights, know-how, data or intellectual property rights from a Third
Party which would constitute Patent Rights and/or AutoImmune Technology,
AutoImmune shall promptly notify Teva in writing of such license or development
describing in reasonable detail the subject matter thereof and shall provide
reasonable responses to Teva's reasonable inquiries, and [ ] after
receipt of such notice, Teva shall have the right to advise AutoImmune in
writing that it does not wish to have the intellectual property specified in
Teva's written notice constitute Patent Rights and/or AutoImmune Technology. If
Teva timely furnishes such notice, Teva shall have no rights under this
Agreement to the specified intellectual property. If Teva does not furnish such
notice [ ] after its receipt of AutoImmune's written notice, the
intellectual property specified in AutoImmune's written notice shall constitute
Patent Rights and/or AutoImmune Technology, as the case may be.
2.2 SUBLICENSES. Teva shall have the right to grant Sublicenses under the
Patent Rights and the AutoImmune Technology to Affiliates of Teva. Teva shall
also have the right to grant Sublicenses under the Patent Rights and the
AutoImmune Technology to Third Parties approved by AutoImmune in writing (such
approval not to be unreasonably withheld) under the same terms and conditions
(to the extent applicable) as apply to Teva hereunder. Teva shall give written
notice to AutoImmune of Teva's intention to grant a Sublicense to a Third Party,
said
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notice to be given at least [ ] before the effective date of said
Sublicense, and AutoImmune shall be deemed to have approved the Third Party
unless within [ ] after receipt of Teva's written notice,
AutoImmune advises Teva in writing that it does not approve the Third Party and
specifies in reasonable detail the reasons for its objection. Any objection
which AutoImmune may have to the Third Party shall be dealt with pursuant to
Section 10.6 hereinbelow except that if the parties are not able to resolve the
matter pursuant to Section 10.6.1, the parties will proceed to binding
arbitration pursuant to Section 10.6.3. Teva shall be responsible for the
performance by its Sublicensees of all obligations imposed under the terms of
this Agreement.
2.3 RESERVED RIGHTS OF THE U.S. GOVERNMENT AND BRIGHAM & WOMEN'S HOSPITAL.
Teva acknowledges that the license granted herein is subject to rights of the
United States Government under 35 U.S.C. (S)(S)200-212 and a license retained by
the Brigham & Women's Hospital to use technology developed at the institution
for its own internal research purposes.
2.4 SALES OBLIGATIONS.
(a) Teva agrees to use commercially reasonable efforts, at no expense
to AutoImmune, to sell, either directly or indirectly, the Licensed Products to
obtain maximum sales of the Licensed Products. What shall constitute
"commercially reasonable efforts" shall be determined with reference to
objective industry practices.
(b) Teva shall have no obligation to sell, either directly or
indirectly, Licensed Products in any country where it is not commercially
reasonable to do so.
2.5 TEVA'S RIGHTS. Teva shall have the right to develop and sell in any
country whatsoever any products competitive with the Licensed Products.
2.6 SALES PRICE. AutoImmune shall not have the right to set the sales
prices of the Licensed Products.
2.7 CO-PROMOTIONAL RIGHTS. At AutoImmune's request, Teva shall in good
faith consider granting co-promotional rights for AutoImmune and/or its
Affiliates in the U.S. for Licensed Products following Final Market Approval in
the U.S. for the Licensed Product.
2.8 NO OTHER TECHNOLOGY RIGHTS. Except as otherwise expressly provided in
this Agreement, under no circumstances shall a party hereto, as a result of this
Agreement, obtain any ownership interest in or other right to any technology,
know-how, patents, pending patent
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applications, products or biological materials of the other party, including
items owned, controlled or developed by the other party, or transferred by the
other party to said party, at any time pursuant to this Agreement.
2.9 AUTOIMMUNE SYNERGIST TECHNOLOGY. AutoImmune Synergist Technology is
not included in the license granted to Teva in Section 2.1 and AutoImmune shall
be free to license and develop the AutoImmune Synergist Technology with Third
Parties. [Two sentences omitted].
2.10 AUTOIMMUNE INFORMATION EXCHANGE; REPORTS. Once every [ ]
following the Effective Date, AutoImmune shall provide Teva with a reasonably
detailed written report describing all Patent Rights and/or AutoImmune
Technology developed by, or licensed (with the right to sublicense) to,
AutoImmune during the preceding twelve months. As soon as is reasonably
practicable following delivery of each such report, representatives of the
parties shall meet to discuss each such report. The site of the meetings shall
be alternatively selected by AutoImmune and Teva.
ARTICLE 3. EFFORTS DURING DEVELOPMENT PHASE
3.1 DILIGENT EFFORTS OF TEVA. (a) During the Development Phase and
thereafter, Teva agrees, at its own expense, to use diligent efforts to perform
research, preclinical development and clinical development with respect to
Licensed Products and to seek and use commercially reasonable efforts to obtain
Final Marketing Approvals for Licensed Products in the U.S., Canada and the
European Union at the earliest practicable date. Teva shall have sole
responsibility for filing and obtaining health registrations for and all other
approvals necessary to market all Licensed Products and shall have sole rights
to any such health registrations and approvals which it obtains. The standard
for judging diligent efforts in clinical development are described in subsection
(b) below.
(b) Teva shall request a meeting with the FDA within [ ] of
the Effective Date, which time period may be extended by mutual agreement of the
parties, [Remainder of paragraph and one additional paragraph omitted].
(c) In the event Teva is in breach of subsection (b) above and such
breach continues for [ ] or more following notice from AutoImmune
specifying that such breach has occurred and the nature thereof, AutoImmune
shall have the right, as its sole remedy for such breach, to terminate this
Agreement upon written notice to Teva.
3.2 TEVA INFORMATION EXCHANGE, REPORTS. During the Development Phase and
thereafter, Teva shall keep AutoImmune informed as to its progress related to
the Licensed Products, including but not limited to prompt disclosure of any
information on adverse reactions (AutoImmune shall have a corresponding
obligation to make prompt disclosure to Teva of any information on adverse
reactions) and summarized results of all preclinical or clinical studies or
tests performed by Teva or its Affiliates and sublicensees. Once every [
] following the Effective Date, Teva shall provide AutoImmune with a
reasonably detailed development plan
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for the forthcoming [ ] and a reasonably detailed report describing
Teva's progress during the preceding [ ] with respect to Teva's efforts
under this Agreement. As soon as is reasonably practicable following delivery of
each such plan and report, representatives of the parties shall meet to discuss
each such plan and report. The site of the meetings shall be alternatively
selected by AutoImmune and Teva.
3.3 RIGHT TO USE DATA. AutoImmune shall provide Teva full access to all
of its notes, data and other information relating to Licensed Products in the
Field, including, without limitation, all preclinical and clinical information
relating to Myloral(R). Teva shall maintain all preclinical and clinical
information and data which Teva generates in connection with Licensed Products
during the course of preclinical and clinical trials conducted during the
Development Phase, and Teva shall grant AutoImmune a non-exclusive, worldwide,
royalty-free license to any such preclinical and clinical data and information,
including the right to sublicense; during the term of this Agreement, such
license and sublicense shall be for use only outside the Field. In no event
shall such license by Teva cover market research or sales data for any country
acquired or obtained by Teva. In the event this Agreement expires in its
entirety in accordance with Section 9.1 or is terminated other than by Teva
pursuant to Section 9.2.1, AutoImmune shall retain such license and shall have
unrestricted access to and use of such information and data for any purpose,
including any regulatory purpose. Any sublicense granted by AutoImmune under
this Section 3.3 shall contain confidentiality provisions no less restrictive
than Article 6.
3.4 AVAILABILITY OF EMPLOYEES AND CONSULTANTS. At Teva's expense,
AutoImmune agrees to make its employees and consultants reasonably available at
their respective places of employment or at Teva's facilities to consult with
Teva (a) on issues arising during the Development Phase in connection with any
request from any regulatory agency, including regulatory, scientific, technical
and clinical testing issues or (b) to provide information reasonably requested
by Teva with respect to Patent Rights and/or AutoImmune Technology, unless
AutoImmune reasonably determines in good faith that such requests are unduly
burdensome.
3.5 ATTENDANCE AT REGULATORY MEETINGS. Teva will provide AutoImmune with
reasonable prior notice of all meetings between its representatives and
regulatory authorities regarding marketing approval of the Licensed Products.
AutoImmune shall have the right to have a representative present at all
important meetings; provided, however, that Teva may revoke this right with
respect to any particular meeting if, in its good faith reasonable judgment, the
presence of AutoImmune will be a detriment to the success of the meeting.
AutoImmune will furnish, at Teva's request, a representative to attend
regulatory meetings of Teva regarding marketing approvals of the Licensed
Products.
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ARTICLE 4. PAYMENTS
4.1 MILESTONE PAYMENTS. Subject to the following provisions of this
Section 4.1, upon the achievement of each of the milestones set forth below,
Teva shall make the corresponding payment stated below:
MILESTONE PAYMENT
(a) Final Marketing Approval for the first [ ]
Licensed Product for the treatment of
multiple sclerosis in the U.S. or any member
state of the European Union
(b) Final Marketing Approval for the first [ ]
Licensed Product for the treatment of
myasthenia gravis in the U.S. or any member
state of the European Union
(c) Final Marketing Approval for the first [ ]
Licensed Product for an indication other than
the treatment of multiple sclerosis or
myasthenia gravis in the U.S. or any member
state of the European Union
[One paragraph omitted].
The milestone payments shall be paid in United States dollars by certified
or bank check or wire transfer [remainder of sentence omitted]. Payments made
by Teva to AutoImmune pursuant to this Section 4.1 are not refundable under any
circumstances and, [ ], will not be credited against
payments due to AutoImmune pursuant to Section 4.2 or Section 4.3.
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4.2 ROYALTIES. Following the First Commercial Sale of a Licensed Product,
eva will pay, on a quarterly basis [
], a royalty in the amounts set forth below on Net Sales of
the Licensed Product during the previous quarter.
4.2.1 ROYALTY CALCULATION. In consideration of the licenses granted
to Teva, subject to the provisions of Section 4.2.2, Teva shall pay to
AutoImmune a royalty at the rates set forth on Exhibit B of the Net Sales of the
Licensed Products sold by Teva, its Affiliates and/or Sublicensees. Non-binding
examples of the calculations contemplated herein are set forth in Exhibit C for
illustrative purposes only.
4.2.2 [Subsection consisting of two sentences omitted].
4.2.3 ROYALTY REPORTS, EXCHANGE RATES. During the term of this
Agreement following the First Commercial Sale of a Licensed Product, Teva shall
within [ ] after each calendar quarter furnish to
AutoImmne a written quarterly report showing: (i) the gross sales of the
Licensed Products sold by Teva, its Affiliates, and its Sublicensees during the
reporting period and the calculation of Net Sales from such gross sales; (ii)
the royalty due thereon; (iii) withholding taxes, if any, required by law to be
deducted in respect of such royalties; and (iv) the exchange rates used in
determining the amount of United States dollars. All sales in currencies other
than United States dollars shall be converted into United States dollars
calculated at the average of the exchange rates published in The Wall Street
Journal on the first and last days of the calendar quarter. If no royalty is due
for any royalty period hereunder, Teva shall so report. Teva shall keep complete
and accurate records in sufficient detail to properly reflect all gross sales
and Net Sales and to enable the royalties payable hereunder to be determined.
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4.2.4 AUDITS. Upon the written request of AutoImmune, Teva shall
permit an independent public accountant selected by AutoImmune and acceptable to
Teva, which acceptance shall not be unreasonably withheld or delayed, to have
access during normal business hours to such records of Teva as may be reasonably
necessary to verify the accuracy of the royalty reports described herein, in
respect of any calendar year ending not more than [
] prior to the date of such request. All such verifications shall
be conducted at AutoImmune's expense and not more than once in each calendar
year. In the event such AutoImmune representative concludes that additional
royalties were owed to AutoImmune during such period, the additional royalty
shall be paid by Teva within [ ] of the date AutoImmune delivers to
Teva such representative's written report so concluding, and in the event such
AutoImmune representative concludes Teva overpaid royalties to AutoImmune during
suchperiod, the overpayment shall be repaid to Teva within [ ] of the
date AutoImmune delivers to Teva such representative's report so concluding. The
fees charged by such representative shall be paid by AutoImmune unless the audit
discloses that the royalties payable by Teva for the audited period are
incorrect by more than [ ], in which case Teva shall pay the
reasonable fees and expenses charged by such representative. Teva shall include
in each Sublicense granted by it pursuant to this Agreement a provision
requiring the Sublicensee to make reports to Teva, to keep and maintain records
of sales made pursuant to such Sublicense and to grant access to such records by
AutoImmune's representatives to the same extent required of Teva under this
Agreement. AutoImmune agrees that all information subject to review under this
Section 4.2.4 or under any Sublicense is confidential and that AutoImmune shall
cause its representatives to retain all such information in confidence for the
effective term of this Agreement and for a period of [ ] following
the termination or expiration of this Agreement.
4.2.5 FOREIGN ROYALTIES. If royalties are due AutoImmune hereunder
for sales of Licensed Products in a country in which, by reason of currency
regulations or taxes of any kind, it is impossible or illegal for Teva, its
Affiliates and/or Sublicensees to transfer royalty payments to AutoImmune for
Net Sales in that country, such royalties shall be deposited in whatever
currency is allowable by the person or entity not able to make the transfer for
the benefit or credit of AutoImmune in an accredited bank in that country that
is acceptable to AutoImmune.
4.2.6 WITHHOLDING TAXES. Teva shall deduct any withholding taxes from
payments due AutoImmune hereunder required under law with respect to such
payments and shall pay them to the proper tax authorities as required by
applicable laws. Teva shall maintain official receipts of payment of any
withholding taxes and forward these receipts to AutoImmune within [
]. The parties will exercise diligent efforts to ensure that any
withholding taxes imposed are reduced as far as possible under the provisions of
any treaties applicable to any payment made hereunder.
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4.2.7 INTEREST ON LATE PAYMENTS. Any payments by one party to the
other that are not paid on or before the [ ] after the date such
payments are due under this Agreement shall bear interest at the lower of (a)
the maximum rate permitted by applicable law and (b) two (2) percentage points
above the prime rate of interest reported from time to time by The Wall Street
Journal, calculated on the number of days payment is delinquent.
4.3 SUBLICENSES. If Teva Sublicenses any of the rights granted to it under
this Agreement, in addition to the royalties payable to AutoImmune pursuant to
Section 4.2 based upon Net Sales by the Sublicensee, Teva shall pay to
AutoImmune [ ] of the fair market value of all non-royalty
consideration received by Teva or its Affiliates on account of such Sublicense.
ARTICLE 5. INTELLECTUAL PROPERTY
5.1. FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHTS.
5.1.1 PROSECUTION AND MAINTENANCE. (a) AutoImmune shall be
responsible for the filing, prosecution and maintenance of the Patent Rights in
its own name. Subject to the following provisions of this Section 5.1.1, Teva
shall reimburse [ ] of AutoImmune's costs and expenses incurred
after the Effective Date in filing a patent application which is included in the
Patent Rights, prosecuting any patent applications included in the Patent
Rights, and maintaining any issued patents included in the Patent Rights;
provided, however, that in no event shall Teva be required to pay under this
Section 5.1.1(a) more than [portion of sentence omitted] following the Effective
Date or more than [remainder of sentence omitted]. AutoImmune shall furnish Teva
with such information as Teva shall reasonably request with respect to the costs
and expenses to be reimbursed and Teva shall make such reimbursement within [
] after AutoImmune's request therefor. Teva shall have audit
rights with respect to any such reimbursements as provided in Section 4.2.4. Any
late payments shall bear interest as provided in Section 4.2.7.
(b) In the event AutoImmune proposes to license any of the Patent
Rights to a Third Party outside the Field or those Patent Rights which are
described in Section 2.1(b) for use inside the Field, AutoImmune shall use
reasonable efforts to cause the Third Party to agree to reimburse AutoImmune's
costs and expenses thereafter incurred in filing a patent application which is
included in the Patent Rights, prosecuting any patent applications included in
the Patent Rights, and maintaining any issued patents included in the Patent
Rights, and to the extent the Third Party agrees to so reimburse AutoImmune,
Teva's obligation to reimburse AutoImmune under this Section 5.1.1 shall be
eliminated or reduced accordingly.
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(c) In the event AutoImmune licenses any of the Patent Rights to a
Third Party outside the Field or those Patent Rights which are described in
Section 2.1(b) for use inside the Field, and receives royalties or other non-
royalty consideration as a result, AutoImmune shall pay to Teva, beginning with
the first royalties or other non-royalty consideration received by AutoImmune,
[remainder of sentence omitted]. Such payments shall reimburse Teva for all
amounts paid by Teva to AutoImmune pursuant to Section 5.1.1(a). When
reimbursement in full has been made, AutoImmune's obligations to make further
payments under this Section 5.1.1(c), and Teva's obligations to make further
payments to AutoImmune under Section 5.1.1(a), shall terminate.
(d) Teva shall be kept informed of all activities of AutoImmune
covered by Section 5.1.1(a) and, without limitation of the foregoing, shall be
provided with copies of all filings proposed to be made by AutoImmune in
appropriate jurisdictions in sufficient time to reasonably permit Teva to
comment thereon. AutoImmune shall consider in good faith (i) all suggested
comments timely received from Teva and (ii) all suggestions made by Teva as to
the jurisdictions in which filings should be made.
5.1.2 ABANDONMENT; FAILURE TO PAY. AutoImmune agrees that it will
not abandon the prosecution of any patent applications included within the
Patent Rights nor shall it fail to make any payment or fail to take any other
action necessary to maintain a patent under the Patent Rights unless it has
notified Teva in sufficient time for Teva to assume such prosecution or make
such payment. If AutoImmune elects not to continue to seek or maintain patent
protection on any patent or patent application included in the Patent Rights,
Teva shall have the right, at its option and expense, but in the name of
AutoImmune, to prepare, file, prosecute (including oppositions) and maintain
such patent applications and patents; provided, however, that the rights of the
parties with respect to any such Patent Rights in all other respects shall be as
described in this Agreement. If Teva exercises its rights under this Section
5.1.2 with respect to any Patent Rights, (a) such Patent Rights shall thereupon
cease to be Patent Rights for purposes of this Agreement for purposes of royalty
obligations and (b) Teva shall be thereupon deemed to have a fully-paid up,
royalty-free, world-wide license under such Patent Rights. If AutoImmune
subsequently licenses such Patent Rights to a Third Party, all consideration
received by AutoImmune from the Third Party for such license shall be [
] by AutoImmune and Teva.
5.1.3 COOPERATION. Each party shall make available to the other party
(or to the other party's authorized attorneys, agents or representatives), its
employees, agents or consultants to the extent reasonably necessary or
appropriate to enable the appropriate party to file, prosecute and maintain
patent applications and resulting patents as set forth in this Section 5.1 for
periods of time reasonably sufficient for such party to obtain the assistance it
needs from such personnel.
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Where appropriate, each party shall sign or cause to have signed all documents
relating to said patent applications or patents at no charge to the other party.
5.2 INFRINGEMENT BY OTHERS.
5.2.1 PROSECUTION BY AUTOIMMUNE. AutoImmne and Teva shall each
promptly notify the other in writing of any alleged or threatened infringement
of patents or patent applications included in the Patent Rights licensed
hereunder to Teva of which they become aware, and the parties shall consult
concerning the action to be taken. AutoImmune shall have the right, but not the
obligation, to prosecute at its own expense any such infringement. If AutoImmune
shall prosecute any such infringement, Teva shall have the right at its expense
to join any suit or action brought by AutoImmune, but AutoImmune shall have the
sole right to control the suit or action in consultation with Teva. [ Sentence
omitted]. Any recovery or damages derived from such action shall first be used
to reimburse the parties for all legal expenses relating to the suit and
thereafter shall be [ ] by AutoImmune and Teva.
5.2.2 PROSECUTION BY TEVA. If, within [ ] after
AutoImmune first becomes aware of any infringement of the Patent Rights,
AutoImmune declines to prosecute such infringement or fails to cause such
infringement to terminate or to bring or diligently prosecute a suit or action
to compel termination, Teva shall have the right, but not the obligation, to
bring such suit or action to compel termination at the sole expense of Teva. In
such event, Teva shall have the right to bring such suit or action in the name
of AutoImmune. AutoImmune shall have the right to join any such suit or action
brought by Teva at AutoImmune's expense, but Teva shall have the sole right to
control the suit or action in consultation with AutoImmune. Any recovery or
damages derived from such action shall first be used to reimburse the parties
for all legal expenses relating to the suit and thereafter shall be [remainder
of sentence omitted]. No settlement, consent, judgement or other voluntary final
disposition of the suit may be entered into without the consent of AutoImmune,
which consent shall not unreasonably be withheld.
5.3 DECLARATORY ACTIONS. In the event that a declaratory judgment action
alleging invalidity or non-infringement of any of the Patent Rights shall be
brought against either of the parties, such party shall notify the other party
in writing, and the parties shall consult concerning the action to be taken.
AutoImmune, at its sole option, shall have the right, within [ ] after
commencement of such action, to intervene, take over and duly prosecute, as
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applicable, the sole defense of the action at its own expense. Teva shall have
no obligation to defend any such action, but Teva shall have the right, at its
own expense, to join in the defense of any such suit or action or to defend any
such action if AutoImmune has decided not to do so within [ ] after
AutoImmune first becomes aware of the action.
5.4 INFRINGEMENT ACTION AGAINST TEVA OR AUTOIMMUNE. (a) In the event that
a suit or action is brought against Teva alleging infringement of any third-
party patent right as a result of the exercise of Teva's rights under Section
2.1, Teva shall have the exclusive right to defend such suit or action at its
sole expense. AutoImmune will confer with and assist Teva, at AutoImmune's
expense, in the conduct or settlement of such defense. AutoImmune shall have
the right to be represented in such suit or action by advisory counsel at its
expense. Teva shall not have the right to settle any such suit or action
without the prior written consent of AutoImmune if as a result of such
settlement AutoImmune would be obligated to make any payment, assume any
obligation, part with any property or interest therein, be subject to any
injunction or order, grant any license or other right under the Patent Rights,
or acknowledge the invalidity of any of the Patent Rights. Any recovery or
damages obtained by Teva in relation to any counterclaim or the like filed by
Teva in such suit shall be applied first in satisfaction of any expenses and
legal fees of Teva relating to the suit. Any recovery or damages still
remaining shall be shared [remainder of sentence omitted].
(b) AutoImmune shall with reasonable promptness apprise Teva in writing
(i) in the event a suit or action is brought against AutoImmune alleging
infringement of any third-party patent right licensed to Teva under Section 2.1
and (ii) of all material developments in such suit or action.
5.5 COOPERATION. In any infringement suit either party may institute to
enforce or defend the Patent Rights or in which either party defends claims of
infringement of third-party patents pursuant to this Agreement or in any
declaratory judgment action defended by a party, the other party shall, at the
request of the party initiating or defending such suit, cooperate at its expense
in all respects and, to the extent possible, have its employees testify when
requested and make available relevant records, papers, information, samples and
the like.
5.6 IMPROVEMENTS. Teva hereby grants AutoImmune a non-exclusive worldwide
license to use, manufacture, have manufactured, distribute for sale, and/or sell
Improvements (whether patentable or not) developed during the term of this
Agreement; during the term of this Agreement, such license shall be for use only
outside the Field. The royalty rate and terms and conditions for an agreement
(which terms and conditions other than financial terms and
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conditions shall be consistent with this Agreement) for such license shall be
negotiated in good faith between the parties. The license granted under this
Section 5.6 shall permit AutoImmune to sublicense its license rights to
Improvements provided that the sublicensee has agreed to license AutoImmune (and
through AutoImmune to Teva within the Field) any inventions, whether or not
patentable, information, know-how and data of any kind owned or controlled by,
or licensed (with the right to sublicense) to the sublicensee for use in
connection with Oral Tolerance Technology. AutoImmune shall use commercially
reasonable efforts to obtain such a right from a potential sublicensee. Any
sublicense granted by AutoImmune under this Section 5.6 shall contain
confidentiality provisions no less restrictive than Article 6. If AutoImmune
does sublicense its rights to Improvements, Teva shall be entitled to receive [
] of any royalty stream or other non-royalty consideration
which AutoImmune obtains from its sublicensee for such Improvements. In the
event this Agreement expires in its entirety in accordance with Section 9.1 or
is terminated other than by Teva pursuant to Section 9.2.1, AutoImmune shall
retain such license, subject to the payment of royalties and other terms and
conditions as specified in such license.
ARTICLE 6. CONFIDENTIALITY
6.1 NONDISCLOSURE OBLIGATIONS.
6.1.1 GENERAL. Except as otherwise provided in this Article 6, during
the term of this Agreement and for a period of [ ] thereafter, both
parties shall maintain in strict confidence and use only for purposes
specifically authorized under this Agreement (i) information and data received
from the other party resulting from or related to the development of the
Licensed Products and (ii) all information and data not described in clause (i)
but supplied by the other party under this Agreement. For purposes of this
Article 6, information and data described in clause (i) or (ii) shall be
referred to as "Information".
6.1.2 LIMITATIONS. To the extent it is reasonably necessary or
appropriate to fulfill its obligations or exercise its rights under this
Agreement, a party may disclose to its Affiliates, sublicensees, consultants,
outside contractors and clinical investigators, Information it is otherwise
obligated under this Section 6.1 not to disclose on a need-to-know basis on
condition that such entities or persons agree to keep the Information
confidential for the same time periods and to the same extent as such party is
required to keep the Information confidential; and a party or its sublicensees
may disclose such Information to government or other regulatory authorities to
the extent that such disclosure is reasonably necessary to obtain patents or
authorizations to conduct clinical trials of, and to commercially market, the
Licensed Products. The obligation not to disclose Information shall not apply to
any part of such Information that: (i) is or becomes part of the public domain
other than by unauthorized acts of
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the party obligated not to disclose such Information or its Affiliates or
sublicensees; (ii) can be shown by written documents to have been disclosed to
the receiving party or its Affiliates or sublicensees by a Third Party, provided
such Information was not obtained by such Third Party directly or indirectly
from the other party under this Agreement pursuant to a confidentiality
agreement; (iii) prior to disclosure under this Agreement, was already in the
possession of the receiving party or its Affiliates or sublicensees, provided
such Information was not obtained directly or indirectly from the other party
under this Agreement pursuant to a confidentiality agreement; (iv) can be shown
by written documents to have been independently developed by the receiving party
or its Affiliates without breach of any of the provisions of this Agreement; or
(v) is disclosed by the receiving party pursuant to interrogatories, requests
for information or documents, subpoena, civil investigative demand issued by a
court or governmental agency or as otherwise required by law, provided that the
receiving party notifies the other party immediately upon receipt thereof and
provided further that the disclosing party furnishes only that portion of the
Information which it is advised by counsel is legally required.
6.2 TERMS OF THIS AGREEMENT. Except as provided in Section 10.7 hereof,
AutoImmune and Teva each agree not to disclose any specific terms or conditions
of this Agreement to any Third Party without the prior written consent of the
other party, except as required by applicable law or pursuant to a
confidentiality agreement with a potential source of financing or merger partner
no less restrictive than this Article 6. If either party determines that it is
required to file with the Securities and Exchange Commission or other
governmental agency this Agreement for any reason, such party shall request
confidential treatment of such portions of this Agreement as it and the other
party shall together determine. Notwithstanding the foregoing, prior to
execution of this Agreement, AutoImmune and Teva shall agree in writing upon the
substance of information that can be used as a routine reference in the usual
course of business to describe the terms of this transaction, and AutoImmune and
Teva may disclose such information, as modified in writing by mutual agreement
from time to time, without the other party's consent.
6.3 PUBLICATIONS.
6.3.1 PROCEDURE. Each party recognizes the mutual interest in
obtaining patent protection for inventions which arise under this Agreement. In
the event that either party, its employees or consultants or any other Third
Party under contract to such party wishes to make a publication (including any
oral disclosure made without obligation of confidentiality) relating to work
performed under this Agreement (the "Publishing Party"), such party shall
transmit to the other party (the "Reviewing Party") a copy of the proposed
written publication at least [ ] prior to submission for
publication, or an abstract of such oral disclosure at least [ ]
prior to submission of the abstract or the oral disclosure, whichever is
earlier. The
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Reviewing Party shall have the right (a) to propose modifications to the
publication for patent reasons (and in such case the Publishing Party shall
comply and make such modifications), (b) to request a delay in publication or
presentation in order to protect patentable information, or (c) to request that
the information be maintained as a trade secret and, in such case, the
Publishing Party shall not make such publication. If no request for delay is
made by the Reviewing Party subject to (a), (b) or (c) hereinabove, then the
proposed publication may be submitted for publication.
6.3.2 DELAY. If the Reviewing Party requests a delay as described in
Section 6.3.1(b), the Publishing Party shall delay submission or presentation of
the publication for a period of [ ] to enable patent applications
protecting each party's rights in such information to be filed.
6.3.3 RESOLUTION. Following a delay request pursuant to Section
6.3.2, upon the receipt of written approval of the Reviewing Party, the
Publishing Party may proceed with the written publication or the oral
presentation.
6.3.4 NON-DEROGATION. Nothing in this Section 6 shall derogate or
limit the scope of Section 10.7.
6.4 PROHIBITION. The use by Teva, its Affiliates and sublicensees of the
names "Brigham & Women's Hospital" and "Harvard Medical School" or any other
academic or governmental installation wherein any of the Patent Rights or
AutoImmune Technology has originated in connection with the licensure, marketing
or sale of Licensed Products is expressly prohibited.
6.5 INJUNCTIVE RELIEF. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any
provisions of this Article 6 by either party or their employees, agent, officers
or directors or any other person acting in concert with it or on its behalf.
Accordingly, each party shall be entitled to the granting of injunctive relief
by a court of competent jurisdiction against any action that constitutes any
such breach of this Article 6, without any requirement to post a bond.
ARTICLE 7. REPRESENTATIONS AND WARRANTIES
7.1 MUTUAL REPRESENTATIONS. AutoImmune and Teva each represent and
warrant to the other with respect to Sections 7.1.1, 7.1.2, 7.1.3 and 7.1.4 and
AutoImmune represents and warrants to Teva with respect to Sections 7.1.5,
7.1.6, 7.1.7 and 7.1.8 as follows:
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7.1.1 ORGANIZATION. It is a corporation duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority, corporate or otherwise,
to execute, deliver and perform this Agreement.
7.1.2 AUTHORIZATION. The execution, delivery and performance by it of
this Agreement has been duly authorized by all necessary corporate action and
does not violate any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to it or any provision of its charter documents or any agreement
or other instrument or obligation to which it is bound or its assets are
subject.
7.1.3 BINDING AGREEMENT. This Agreement is a legal, valid and binding
obligation of it enforceable against it in accordance with its terms and
conditions.
7.1.4 NO INCONSISTENT OBLIGATION. Except as provided in Section 2.3,
it is not under any obligation to any person, or entity, contractual or
otherwise, that is conflicting or inconsistent in any respect with the terms of
this Agreement or that would impede the diligent and complete fulfillment of its
obligations.
7.1.5 INEQUITABLE CONDUCT. AutoImmne has not knowingly withheld
information which it knew was relevant and/or material from any U.S. government
agency with regard to securing the Patent Rights. To AutoImmune's knowledge, it
has complied in all material respects with the patent laws and requirements of
all other countries.
7.1.6 NON-INFRINGEMENT. To AutoImmune's knowledge, without having
conducted an investigation and without having knowledge as to the specific
Licensed Product which will ultimately be sold and except for patents which may
be owned by Third Parties covering glatiramer acetates, AutoImmune is not aware
of any patent owned by a Third Party which would be infringed by the exercise by
Teva of the rights granted to it under this Agreement.
7.1.7 TITLE. Subject to the rights referred to in Section 2.3,
AutoImmune has good and undivided title to the Patent Rights and AutoImmune
Technology and the right to grant the licenses granted under this Agreement, it
being understood that this Section is not intended to cover any matter relating
to validity or infringement, which matters are covered by Sections 7.1.5 and
7.1.6.
7.1.8 DISCLOSURE. AutoImmune shall make reasonably diligent efforts
to disclose or make available to Teva all AutoImmune Technology as of the
Effective Date.
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7.2 LIMITATIONS.
7.2.1 DISCLAIMER OF WARRANTY. Except as provided in Section 7.1, the
rights granted by AutoImmune to Teva and by Teva to AutoImmune herein are
provided WITHOUT REPRESENTATION OR WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY OTHER WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED.
EXCEPT AS PROVIDED IN SECTION 7.1, THE PARTIES MAKE NO REPRESENTATION OR
WARRANTY THAT EXERCISE OF THE RIGHTS GRANTED IN THIS AGREEMENT WILL NOT INFRINGE
ANY THIRD-PARTY OR OTHER PROPRIETARY RIGHT. EXCEPT AS PROVIDED IN SECTION 7.1,
AUTOIMMUNE ASSUMES NO RESPONSIBILITY WHATSOEVER WITH RESPECT TO THE PATENT
RIGHTS OR AUTOIMMUNE TECHNOLOGY, OR THE USE THEREOF, OR THE MANUFACTURE,
POSSESSION, USE, MARKETING, SALE OR OTHER DISPOSITION, BY TEVA OR ANYONE ELSE,
OF LICENSED PRODUCT(S). EXCEPT AS PROVIDED IN SECTION 7.1, TEVA ASSUMES NO
RESPONSIBILITY WHATSOEVER WITH RESPECT TO THE IMPROVEMENTS, OR THE USE THEREOF,
OR THE MANUFACTURE, POSSESSION, USE, MARKETING, SALE OR OTHER DISPOSITION, BY
AUTOIMMUNE OR ANYONE ELSE, OF AUTOIMMUNE PRODUCTS. Without limitation of the
generality of this Section, nothing contained herein or in the Patents Rights or
AutoImmune Technology or in the Improvements or in the information or data
licensed by Teva under Section 3.3 shall be construed as extending any
representation or warranty with respect to any of the foregoing or the results
to be obtained thereby.
7.2.2 DISCLAIMER OF CERTAIN DAMAGES. (a) IN NO EVENT WILL AUTOIMMUNE
BE LIABLE TO TEVA OR ANY OTHER PARTY, REGARDLESS OF THE CAUSE OR THEORY OF
ACTION (WHETHER CONTRACT, TORT INCLUDING WITHOUT LIMITATION STRICT LIABILITY AND
NEGLIGENCE, OR OTHERWISE) FOR ANY INCIDENTAL, SPECIAL, PUNITIVE, CONSEQUENTIAL
OR OTHER EXTRAORDINARY DAMAGES RESULTING FROM OR ARISING UNDER THIS AGREEMENT
INCLUDING WITHOUT LIMITATION THE EXERCISE BY TEVA, ITS AFFILIATES AND/OR SUB-
LICENSEES OF THE RIGHTS GRANTED IN THIS AGREEMENT, THE USE BY TEVA, ITS
AFFILIATES AND/OR SUB-LICENSEES OF PATENT RIGHTS OR AUTOIMMUNE TECHNOLOGY, OR
THE MANUFACTURE, SALE OR USE BY TEVA, ITS AFFILIATES AND/OR SUB-LICENSEES OF
LICENSED PRODUCTS. THE FOREGOING PROVISIONS OF THIS CLAUSE (A) SHALL NOT APPLY
TO ANY CLAIMS, LIABILITIES, DAMAGES OR EXPENSES ARISING BY REASON OF
AUTOIMMUNE'S BREACH OF THIS AGREEMENT.
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(b) IN NO EVENT WILL TEVA BE LIABLE TO AUTOIMMUNE OR ANY OTHER PARTY,
REGARDLESS OF THE CAUSE OR THEORY OF ACTION (WHETHER CONTRACT, TORT INCLUDING
WITHOUT LIMITATION STRICT LIABILITY AND NEGLIGENCE, OR OTHERWISE) FOR ANY
INCIDENTAL, SPECIAL, PUNITIVE, CONSEQUENTIAL OR OTHER EXTRAORDINARY DAMAGES
RESULTING FROM OR ARISING UNDER THIS AGREEMENT INCLUDING WITHOUT LIMITATION THE
EXERCISE BY AUTOIMMUNE, ITS AFFILIATES AND/OR SUB-LICENSEES OF THE RIGHTS
GRANTED IN THIS AGREEMENT, THE USE BY AUTOIMMUNE, ITS AFFILIATES AND/OR SUB-
LICENSEES OF IMPROVEMENTS, OR INFORMATION OR DATA LICENSED BY TEVA UNDER SECTION
3.3 OR THE MANUFACTURE, SALE OR USE BY AUTOIMMUNE, ITS AFFILIATES AND/OR SUB-
LICENSEES OF AUTOIMMUNE PRODUCTS. THE FOREGOING PROVISIONS OF THIS CLAUSE (B)
SHALL NOT APPLY TO ANY CLAIMS, LIABILITIES, DAMAGES OR EXPENSES ARISING BY
REASON OF TEVA'S BREACH OF THIS AGREEMENT.
7.2.3 FURTHER LIMITATIONS. Except as provided in Sections 7.1.5,
7.1.6, 7.1.7 and 7.1.8, nothing in this Agreement shall be construed as:
(a) a warranty or representation by AutoImmune as to the validity or
scope of any Patent Rights or by Teva as to the validity or scope of the
Improvements or other information or data licensed by Teva under Section
3.3; or
(b) a warranty or representation that anything made, used, sold or
otherwise disposed of under the rights granted in this Agreement is or will
be free from infringement of a third-party patent or other proprietary
right; or
(c) a warranty or representation that any of the AutoImmune
Technology or Improvements or information or data licensed by Teva under
Section 3.3 has not been, or may not hereafter be, developed independently
by a Third Party; or
(d) conferring by implication, estoppel or otherwise any license or
other right under patents or technology of AutoImmune except for activities
within the Field or to AutoImmune under patents or technology of Teva
and/or its Affiliates except as expressly set forth in this Agreement; or
(e) a warranty or representation by Teva that Licensed Products will
actually receive Final Marketing Approval and/or be sold.
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ARTICLE 8. INDEMNITY
8.1 TEVA INDEMNITY OBLIGATIONS. Teva agrees to defend, indemnify and hold
AutoImmune, its Affiliates and their respective directors, officers, employees
and agents harmless against any and all Third Party claims, suits, losses,
judgments, liabilities, damages, costs and fees (including but not limited to
reasonable attorneys' fees) and expenses resulting from or arising out of (a)
the breach by Teva of its representations and warranties in Section 7 or any
other breach of this Agreement; (b) actual or asserted violations of any
applicable law or regulation by Teva, its Affiliates or Sublicensees by virtue
of which the Licensed Products manufactured, distributed or sold shall be
alleged or determined to be adulterated, misbranded, mislabeled or otherwise not
in compliance with such applicable law or regulation; (c) claims for bodily
injury, death or property damage attributable to the manufacture, distribution,
sale or use of the Licensed Products by Teva, its Affiliates or Sublicensees; or
(d) a recall ordered by a governmental agency, or required by a confirmed
failure, of Licensed Products manufactured, distributed, or sold by Teva, its
Affiliates or Sublicensees.
8.2 AUTOIMMUNE INDEMNITY OBLIGATIONS. AutoImmune agrees to defend,
indemnify and hold Teva, its Affiliates and their respective directors,
officers, employees and agents harmless against any and all Third Party claims,
suits, losses, judgments, liabilities, damages, costs, fees (including but not
limited to reasonable attorneys' fees) and expenses resulting from or arising
out of (a) the breach by AutoImmune of its representations and warranties in
Section 7 or any other breach of this Agreement; (b) actual or asserted
violations of any applicable law or regulation by AutoImmune, its Affiliates or
Sublicensees by virtue of which the AutoImmune Products manufactured,
distributed or sold shall be alleged or determined to be adulterated,
misbranded, mislabeled or otherwise not in compliance with such applicable law
or regulation; (c) claims for bodily injury, death or property damage
attributable to the manufacture, distribution, sale or use of the AutoImmune
Products by AutoImmune, its Affiliates or Sublicensees; or (d) a recall ordered
by a governmental agency, or required by a confirmed failure, of AutoImmune
Products manufactured, distributed, or sold by AutoImmune, its Affiliates or
Sublicensees.
8.3 PROCEDURE. A party or any of its Affiliates or their respective
employees or agents (the "Indemnitee") that intends to claim indemnification
under this Article 8 shall promptly notify the other party (the "Indemnitor") of
any loss, claim, damage, liability or action in respect of which the Indemnitee
intends to claim such indemnification, and the Indemnitor shall assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an Indemnitee shall have the right to retain its own counsel, with
the fees and expenses to be paid by the Indemnitor, if representation of such
Indemnitee by the counsel retained by the Indemnitor would be inappropriate due
to actual or potential differing interests between the Indemnitee and the
Indemnitor. The indemnity agreement in this Article 8 shall not apply to
amounts paid in
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settlement of any loss, claim, damage, liability or action if such settlement is
effected without the consent of the Indemnitor, which consent shall not be
withheld unreasonably. The failure to deliver notice to the Indemnitor within a
reasonable time after the commencement of any such action shall not relieve the
Indemnitor of any liability to the Indemnitee under this Article 8 except to the
extent the Indemnitor has been prejudiced thereby. The Indemnitee and its
employees and agents shall cooperate fully with the Indemnitor and its legal
representatives in the investigation of any action, claim or liability covered
by this indemnification. In the event that an Indemnitee claims indemnity from
the Indemnitor and the Indemnitor is finally held liable to indemnify the
Indemnitee, the Indemnitor shall additionally be liable to pay the reasonable
legal costs and attorneys' fees incurred by the Indemnitee in establishing its
claim for indemnity. If either counsel for Teva or counsel for AutoImmune
represents both Teva and AutoImmune in any action to be indemnified under this
Article 8 or in any action under Article 5, the parties agree that they will not
use that representation to disqualify that counsel in unrelated matters.
8.4 INSURANCE. (a) Teva shall maintain appropriate product liability
insurance with financially responsible insurance carriers covering AutoImmune as
an additional insured with respect to development, manufacture and sales of the
Licensed Products by Teva in such amount as Teva customarily maintains with
respect to sales of its other products. Teva shall maintain such insurance
covering AutoImmune as an additional insured for so long as it continues to
manufacture or sell the Licensed Products, and thereafter for so long as Teva
maintains insurance for itself covering such manufacture or sales.
(b) AutoImmune shall maintain appropriate product liability insurance with
financially responsible insurance carriers covering Teva as an additional
insured with respect to development, manufacture and sales of the AutoImmune
Products by AutoImmune, its Affiliates and Sublicensees in such amount as
AutoImmune customarily maintains with respect to sales of its other products.
AutoImmune shall maintain such insurance covering Teva as an additional insured
for so long as it continues to manufacture or sell the AutoImmune Products, and
thereafter for so long as AutoImmune maintains insurance for itself covering
such manufacture or sales.
8.5 LIMITATION. Except with respect to Sections 8.1(c) and 8.2(c), in no
event shall either party be entitled to any consequential damages or other
similar payment whatsoever from the other, whether in respect of goodwill, loss
of profit or otherwise, pursuant to either Section 8.1 or 8.2.
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ARTICLE 9. EXPIRATION AND TERMINATION
9.1 EXPIRATION. Unless this Agreement is sooner terminated in accordance
with the provisions of this Article 9, the term of Teva's obligation of royalty
ayments pursuant to Section 4.2 hereof shall cease on [
] (a) with respect to royalties calculated on the basis of
Section 1 of Exhibit B, when there is no longer a Valid Claim with respect to
the Licensed Product in the country in which the sales occur and (b) with
respect to royalties calculated on the basis of Section 2 of Exhibit B, [
] after the First Commercial Sale of the Licensed
Product in the country in which the sales occur. Teva shall have an irrevocable
paid-up license thereafter for such Licensed Product in such country.
9.2 TERMINATION.
9.2.1 TERMINATION BY EITHER PARTY. Subject to the provisions of
Sections 3.1 and 9.2.2, this Agreement may be terminated by either party (i) by
reason of a material breach if the breaching party fails to remedy such breach
within [ ] after receipt of written notice thereof by the
non-breaching party or (ii) upon bankruptcy, insolvency, dissolution or winding
up of the other party.
9.2.2 TERMINATION BY AUTOIMMUNE. This Agreement may be terminated by
AutoImmune by written notice to Teva if Teva fails to make any expense or
royalty payment within [ ] after such payment becomes payable
and such failure is not remedied within [ ] after notice
thereof from AutoImmune, provided that Teva may remedy any such breach only once
in a period of [ ] Any notice given by AutoImmune to
Teva under this Section 9.2.2 shall be sent by registered mail, return receipt
requested, to the then effective address for Teva set forth in Section 10.4.
9.3 SURVIVAL. The provisions of Articles 5 (excluding Section 5.6), 6, 7
and 8 and Sections 3.3, 4.1 (with regard to milestone payments due and unpaid),
4.2 (with respect to royalties accrued but not yet paid and with respect to
Sections 4.2.3, 4.2.4, 4.2.5 and 4.2.6), 9.4, 10.6, 10.11 and this Section 9.3
shall survive the expiration or termination of this Agreement.
9.4 NON-LIMITATION OF RIGHTS. Termination of this Agreement pursuant to
Section 9.2 shall not be exclusive or prejudicial to any other rights or
remedies of the non-defaulting party on account of the defaulting party's breach
or default under this Agreement.
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ARTICLE 10. MISCELLANEOUS
10.1 FORCE MAJEURE. Neither party shall be held liable or responsible to
the other party nor be deemed to have defaulted under or be in breach of this
Agreement for failure or delay in fulfilling or performing any term of this
Agreement when such failure or delay is caused by or results from causes beyond
the reasonable control of the affected party, including but not limited to fire,
floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, act of God or acts, omissions or delays in acting by any
governmental authority or the other party; provided, however, that the party so
affected shall use reasonable commercial efforts to avoid or remove such causes
of nonperformance, and shall continue performance hereunder with reasonable
dispatch whenever such causes are removed. Either party shall provide the other
party with prompt written notice of any delay or failure to perform that occurs
by reason of force majeure. The parties shall mutually seek a resolution of the
delay or the failure to perform as noted above.
10.2 ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred by either party without the prior written consent of the other
party; provided, however, that either party may, without such consent, assign
its rights and obligations under this Agreement (i) to any Affiliate or (ii) in
connection with a merger, consolidation or sale of substantially all of such
party's assets to an unrelated Third Party; provided, however, that such party's
rights and obligations under this Agreement shall be assumed in writing by its
successor in interest in any such transaction and shall not be transferred
separate from all or substantially all of its other business assets, including
those business assets that are the subject of this Agreement. Any purported
assignment in violation of the preceding sentence shall be void. Any permitted
assignee shall assume all obligations of its assignor under this Agreement. For
purposes of this Section 10.2, any delegation of a portion of the party's rights
or obligations hereunder shall not be deemed an assignment or other transfer.
10.3 SEVERABILITY. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be held unenforceable or in conflict with applicable law or
regulation, the parties hereto shall substitute, by mutual consent, valid
provisions for such invalid provisions which valid provisions in their economic
effect are sufficiently similar to the invalid provisions that it can be
reasonably assumed that the parties would have entered into this Agreement with
such valid provisions. In case such valid provisions cannot be agreed upon, the
invalidity of one or several provisions of this Agreement shall not affect the
validity of this Agreement as a whole, unless the invalid provisions are of such
essential importance to this Agreement that it is to be reasonably assumed that
the parties would not have entered into this Agreement without the invalid
provisions.
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10.4 NOTICES. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by telephone, personal delivery or courier) or courier, postage
prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.
If to AutoImmune: AutoImmune Inc.
128 Spring Street
Lexington, MA 02421
U.S.A.
Attention: President
Telephone: 781 860 0710
Telecopy: 781 860 0705
with a copy to: Constantine Alexander, Esq.
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110-2699
U.S.A.
Telephone: 617 439 2595
Telecopy: 617 973 9748
If to Teva: Copaxone Division
Teva Pharmaceutical Industries, ltd.
Basel 5, P.O. Box 3190
Petah Tiqva 49131
Israel
Attention: Vice President
Telephone: 972 3 926 7277
Telecopy: 972 3 926 7424
with a copy to: Peter Jakes, Esq.
Willkie, Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
U.S.A.
Telephone: 212 728 8000
Telecopy: 212 728 8111
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10.5 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
choice of laws provisions thereof, provided, however, that the scope, validity
and enforceability of patents shall be determined in accordance with the
applicable laws of the countries in which such patents have been issued.
10.6 DISPUTE RESOLUTION.
10.6.1 GOOD FAITH ATTEMPT TO RESOLVE. The parties hereby agree that
they will attempt in good faith to resolve any controversy or claim arising out
of or relating to this Agreement promptly by negotiations. If a controversy or
claim should arise hereunder, the representatives of the parties will confer at
least once and will attempt to resolve the matter. If the matter has not been
resolved within [ ] of their first conference, the
representatives shall refer the matter to the Chief Executive Officer of
AutoImmune and the Vice President of Teva's Copaxone Division (the "Officers").
10.6.2 MEDIATION. Unless the parties agreed to proceed directly to
binding arbitration pursuant to Section 10.6.3 below, if the matter has not been
resolved within [ ] days of the first conference of the Officers
(which period may be extended by mutual agreement), either party may request
mediation, and in such case the parties agree to attempt in good faith to settle
the matter by mediation to be held in accordance with the Commercial Mediation
Rules (the "Mediation Rules") of the American Arbitration Association (the
"Association") as the Mediation Rules then exist, in New York, New York, with
the following deviations from the Mediation Rules. By mutual agreement, the
parties shall select at least one qualified neutral mediator to serve who shall
be an expert in the area of dispute. The party requesting mediation shall
designate its nominee or nominees in the request, which shall be addressed to
the Association with a simultaneous copy to the other party. The other party may
accept a nominee of the requesting party or may designate its own nominee or
nominees. The requesting party may accept a nominee of the other party or reject
the nominee. If within [ ] after the initial request for
mediation, the parties are unable to select a mutually satisfactory, qualified
neutral expert mediator, a mediator shall be appointed by the Association
according to the Mediation Rules.
10.6.3 ARBITRATION. If the parties are unable to resolve the matter
through mediation within [ ] after mediation has been
requested, the parties shall submit the dispute to arbitration and shall use
their best efforts to cause such arbitration to be concluded and a decision
rendered within [ ] of the date of submission. The arbitration
shall be held in accordance with the Commercial Arbitration Rules of the
Association (the "Arbitration Rules") as the Arbitration Rules then exist by one
or more arbitrators appointed in accordance with the Arbitration Rules. The
arbitration shall take place in New York, New York. Any decision or award
resulting from the arbitration provided for herein shall be final and
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binding on the parties hereto. Judgment upon the arbitrator's award may be
entered in any court of competent jurisdiction. The award of the arbitrator may
include compensatory damages against either party, but under no circumstances
will the arbitrator be authorized to, nor shall he, award punitive damages or
multiple damages against either party.
10.6.4 RIGHT TO SEEK INJUNCTIVE RELIEF. Notwithstanding the foregoing
provisions of this Section 10.6, either party has the right to bring suit in a
court of competent jurisdiction against the other party for (i) any breach of
such other party's duties of confidentiality pursuant to Article 6 of this
Agreement and (ii) any infringement of its own proprietary rights by the other
party.
10.6.5 NO OTHER PROCEEDINGS. The parties agree not to institute any
litigation or other proceedings against each other in connection with this
Agreement except as provided in this Section 10.6 unless this Agreement
otherwise provides.
10.7 PUBLIC ANNOUNCEMENTS. The parties agree that press releases and other
announcements to be made by either of them in relation to this Agreement shall
be subject to the written consent of the other party, which consent shall not be
unreasonably withheld or delayed, except to the extent otherwise required by
law. The parties will agree to issue a joint press release immediately following
the execution of this Agreement, the form and content of which shall be
reasonably satisfactory to both parties.
10.8 ENTIRE AGREEMENT. This Agreement, together with the Exhibits hereto,
contains the entire understanding of the parties with respect to the subject
matter hereof. All express or implied agreements and understandings, either oral
or written, heretofore made are expressly merged in and made a part of this
Agreement. This Agreement may be amended, or any term hereof modified, only by a
written instrument duly executed by both parties hereto.
10.9 HEADINGS. The captions to the several Articles and Sections
hereof are not a part of this Agreement, but are merely guides or labels to
assist in locating and reading the several Articles and Section hereof.
10.10 INDEPENDENT CONTRACTORS. It is expressly agreed that AutoImmune and
Teva shall be independent contractors and that the relationship between the two
parties shall not constitute a partnership, joint venture or agency. Neither
AutoImmune nor Teva shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior consent of the other party to do so.
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10.11 AGREEMENT NOT TO SOLICIT. During the term of this Agreement and for a
period of [ ] following the termination hereof, AutoImmune and
Teva agree not to seek to persuade or induce any employee or consultant of the
other party to discontinue his or her employment with or rendering of services
to that party in order to become employed by or associated with any business,
enterprise or effort that is associated with its own business, or to hire any
such person or any person who had been an employee or consultant of the other
party within [ ] of the date of hire. Nothing contained in this
Section 10.11 shall preclude a party from hiring an employee of the other party
if such employee applies for employment solely in response to a newspaper
advertisement or other public solicitation not specifically directed to
employees of the other party.
10.12 EXPORTS. The parties acknowledge that the export of technical data,
materials, or products is subject to the exporting party receiving any necessary
export licenses and that the parties cannot be responsible for any delays
attributable to export controls which are beyond the reasonable control of
either party. AutoImmune and Teva agree not to export or re-export, directly or
indirectly, any information, technical data, the direct product of such data,
samples or equipment received or generated under this Agreement in violation of
any applicable export control laws or governmental regulations. AutoImmune and
Teva agree to obtain similar covenants from their licensees, sublicensees and
contractors with respect to the subject matter of this Section 10.12.
10.13 WAIVER. The waiver by either party hereto of any right hereunder or
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
10.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.15 INTERPRETATION. The parties acknowledge and agree that: (i) each
party and its counsel reviewed and negotiated the terms and provisions of this
Agreement and has contributed to its revision; (ii) the rule of construction to
the effect that any ambiguities are resolved against the drafting party shall
not be employed in the interpretation of this Agreement; and (iii) the terms and
provision of this agreement shall be construed fairly as to all parties hereto
and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
10.16 IDENTIFICATION OF PATENT RIGHTS; PATENT MARKING. Where appropriate,
all packaging and documentation for the Licensed Products shall include a
notation acknowledging AutoImmune's patent rights in the Licensed Products. Teva
shall mark, and cause its Affiliates and sublicensees to mark, all Licensed
Products made, sold or used under this Agreement, or their containers, in
accordance with the applicable patent marking laws of each country in which such
Licensed Products are to be sold or offered for sale.
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10.17 TAXES. Without derogating from Section 4.2.6, each party shall bear
all taxes imposed on it as a result of the performance by such party under this
Agreement, including but not limited to, any sales tax, any tax on or measured
by any payment required to be made hereunder, any registration tax, or any tax
imposed with respect to the granting of any rights hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
AUTOIMMUNE INC. TEVA PHARMACEUTICAL
INDUSTRIES LTD.
By /s/Robert C. Bishop By /s/ Aaron Schwartz
----------------------- ------------------------
Robert C. Bishop, Ph.D. Aaron Schwartz, Ph.D.
Title: President and Chief Title: Vice President - Copaxone
Executive Officer Division
By /s/Ben Zion Weiner
------------------------
Title: Vice President - Research and
Development
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EXHIBIT A: PATENT RIGHTS
-------------------------
[Two and half pages omitted]
<PAGE>
EXHIBIT B
ROYALTY RATES
1. Subject to the provisions of Section 3 below, the royalty rate for all
Licensed Products for the treatment of multiple sclerosis or myasthenia gravis
covered by Section 1.12(a) of the Agreement in the country of sale shall be
determined as follows:
(a) until aggregate Net Sales for all Licensed Products (whether or not
covered by this Section 1) reach [ ,] the royalty rate
shall be [ ].
(b) when aggregate Net Sales for all Licensed Products (whether or not
covered by this Section 1) exceed [ ], the royalty rate on
the next [ ] of aggregate Net Sales shall be [ ].
(c) when aggregate Net Sales for all Licensed Products (whether or not
covered by this Section 1) exceed [ ], the royalty rate on
the next [ ] of aggregate Net Sales shall be [ ].
(d) when aggregate Net Sales for Licensed Products (whether or not covered
by this Section 1) exceed [ ] the royalty rate on the
next [ ] of aggregate Net Sales (or on all
aggregate Net Sales in excess of [ ] if subsections (e) and
(f) of this Section 1 do not apply) shall be [ ].
(e) when aggregate Net Sales for Licensed Products (whether or not covered
by this Section 1) exceed [ ] the royalty rate on the next
[ ] of aggregate Net Sales shall be [ ]. The
royalty rate payable under this subsection (e) shall only apply if the
reduction in royalty rates contemplated by Section 3 applies.
(f) when aggregate Net Sales for Licensed Products (whether or not covered
by this Section 1) exceed [ ] the royalty rate on the
excess shall be [ ]. The royalty rate payable under
this subsection (f) shall only apply if the reduction in royalty
contemplated by Section 3 applies.
Non-binding examples of the calculations contemplated herein are set forth in
Exhibit C for illustrative purposes only.
<PAGE>
2. Subject to the provisions of Section 3 below, the royalty rate for all
Licensed Products covered by Section 1.12(b) or by Section 1.12(c) of the
Agreement shall be determined as follows:
(a) until aggregate Net Sales for all Licensed Products (whether or not
covered by this Section 2) reach [ ], the royalty rate
shall be [ ].
(b) when aggregate Net Sales for all Licensed Products (whether or not
covered by this Section 2) exceed [ ], the royalty rate on
the next [ ] of aggregate Net Sales shall be [
].
(c) when aggregate Net Sales for all Licensed Products (whether or not
covered by this Section 2) exceed [ ], the royalty rate on
the next [ ] of aggregate Net Sales shall be [ ].
(d) when aggregate Net Sales for Licensed Products (whether or not covered
by this Section 2) exceed [ ], the royalty rate on the
next [ ] of aggregate Net Sales (or on all aggregate
Net Sales in excess of [ ] if subsections (e) and (f) of
this Section 2 do not apply) shall be [ ].
(e) when aggregate Net Sales for Licensed Products (whether or not covered
by this Section 2) exceed [ ], the royalty rate on the
next [ ] of aggregate Net Sales shall be [
]. The royalty rate payable under this subsection (e) shall only
apply if the reduction in royalty rates contemplated by Section 3
applies.
(f) when aggregate Net Sales for Licensed Products (whether or not covered
by this Section 2) exceed [ ] the royalty rate on
the excess shall be [ ]. The royalty rate payable
under this subsection (f) shall only apply if the reduction in royalty
rates contemplated by Section 3 applies.
Non-binding examples of the calculations contemplated herein are set forth in
Exhibit C for illustrative purposes only.
3. The royalty rates set forth in Sections 1 and 2 above shall be [
] for all Net Sales of a Licensed Product arising in the United
States and/or any country in Europe from and after the date Teva and/or its
Affiliates regain from [ ] rights for such Licensed Product
in such country.
-3-
<PAGE>
4. If a Licensed Product is covered by both Sections 1 and 2 above, both
the royalty rate specified in Section 1 and the royalty rate specified in
Section 2 shall apply to [ ].
5. The foregoing dollar amounts of Net Sales are expressed in United
States dollars and shall be converted into such in accordance with Section 4.2.3
of the Agreement.
-4-
<PAGE>
EXHIBIT C: ROYALTY CALCULATION EXAMPLES
-----------------------------------------
ROYALTY PAYMENT WORKSHEET
[Six pages omitted]
<PAGE>
EXHIBIT D: SYNERGIST TECHNOLOGY
--------------------------------
[Two pages omitted]
<PAGE>
EXHIBIT E: MG PEPTIDES
-----------------------
[One half page omitted]
<PAGE>
EXHIBIT 10.27
AGREEMENT
---------
THIS AGREEMENT is dated as of June 15, 1998 between AUTOIMMUNE INC., a
Delaware corporation ("AutoImmune") and ANTIGENICS, LLC, a Delaware limited
liability company ("Antigenics").
BACKGROUND
----------
AutoImmune, as Sublandlord, and Antigenics, as Subtenant, entered into a
Sublease, effective as of November 1, 1997, for certain premises on the 400, 500
and 600 levels in the building known as Building B of One Ledgemont Center (the
"Subleased Premises") (the "Sublease"). Capitalized terms used herein shall have
the same meaning ascribed to them in the Sublease. AutoImmune and Antigenics
have consented to termination of the Sublease to ensure that Antigenics will
vacate the Subleased Premises by a date certain, subject to the terms and
provisions of this Agreement. Neither party acknowledges any default under the
terms of the Sublease.
NOW, THEREFORE, AutoImmune and Antigenics hereby agree as follows:
1. AutoImmune and Antigenics agree that the Sublease was terminated as
of June 15, 1998. Subject to the terms and provisions of this
Agreement, however, Antigenics may continue to occupy the Subleased
Premises (except for the "Excluded 600 Level Space" [defined
herein]) until
<PAGE>
September 30, 1998 (the period commencing on June 16, 1998 and
ending on September 30, 1998 shall be referred to herein as the
"Contingent Occupancy Period"), subject to the provisions of
Section 15. Antigenics' occupancy of the Subleased Premises (except
for the Excluded 600 Level Space) during the Contingent Occupancy
Period shall be subject to all of the terms and provisions of the
Sublease, as modified by this Agreement; however, nothing in this
Agreement shall be construed to create a new tenancy between
AutoImmune and Antigenics.
2. Except for one office located on the 600 level of the Subleased
Premises, which office is shown on Exhibit A hereto as the
"Occupied Office," Antigenics shall vacate all other portions of
the 600 Level of the Subleased Premises effective as of the date
hereof (such other portions of the 600 Level of the Subleased
Premises shall be referred to herein as the "Excluded 600 Level
Space") (As used hereinafter in this Agreement, the term "Subleased
Premises" shall be deemed to mean the Subleased Premises prior to
the date of this Agreement minus the Excluded 600 Level Space).
Effective as of the date hereof, Antigenics shall have no right to
use or access, nor allow other parties to use or access, any
portion of the Excluded 600 Level Space. Antigenics shall have no
right to deny AutoImmune, AutoImmune's tenants, Overlandlord or
-2-
<PAGE>
Overlandlord's tenants access to, nor shall Antigenics have the
right to prevent any of such parties from using, all or any portion
of the Excluded 600 Level Space.
3. On the date hereof, Antigenics shall pay to AutoImmune the
aggregate amount of Annual Rent, additional rent and other charges
due under the Sublease (except for Level 600 for the period May 16,
1998 through June 15, 1998) for the period beginning on April 1,
1998 and ending on June 15, 1998, which the parties hereby
stipulate is $119,153.10.
4. Antigenics shall also pay to AutoImmune payments for use and
occupancy (the "Occupancy Payments") for and on account of its
occupancy of the Subleased Premises during the Contingent Occupancy
Period. The Occupancy Payments for the Contingent Occupancy Period
shall be payable at the rate of $33,413.85 per month. Antigenics
shall pay the entire sum (i.e., $116,949.49) of all Occupancy
Payments due for and during the Contingency Occupancy Period, in
advance on the date hereof, subject to Sections 5 and 15 hereof.
5. AutoImmune agrees to purchase from Antigenics the office furniture
described in the Bill of Sale which is annexed as Exhibit B hereto,
which furniture is currently located in the Subleased Premises, for
the
-3-
<PAGE>
aggregate price of $27,942. Such amount shall be paid for by
AutoImmune by providing Antigenics with a credit against the
aggregate amount of Occupancy Payments due from Antigenics on the
date hereof. The purchase of such furniture (the "Purchased
Furniture") shall be effective as of the date hereof.
Simultaneously with the execution of this Agreement by Antigenics,
Antigenics shall execute and deliver to AutoImmune a Bill of Sale
in the form of Exhibit B hereto. Antigenics shall permit AutoImmune
to enter the Subleased Premises and remove certain of the Purchased
Furniture within fifteen (15) days of receiving a prior written
notice from AutoImmune, not to exceed five (5) items of any
category in Exhibit B.
6. Simultaneously herewith, AutoImmune and Antigenics shall execute an
Agreement For Judgement in the form attached hereto as Exhibit C.
Antigenics hereby authorizes AutoImmune to file such Agreement For
Judgement in a Summary Process Action which AutoImmune shall
promptly commence in the Commonwealth of Massachusetts, District
Court Department of the Trial Court, Concord Division (the "Summary
Process Action"). Antigenics hereby waives all notice and
termination requirements under the Sublease. Antigenics agrees to
accept service of the Summary Process Complaint at the Subleased
Premises and hereby waives all claims for insufficient or
inadequate service of process in such
-4-
<PAGE>
Summary Process Action. Antigenics waives all of its rights to
appeal from the Judgement which shall be entered in the Summary
Process Action in accordance with such Agreement for Judgement, and
Antigenics will not object to the issuance of a Writ of Execution
on such Judgement (the "Execution").
7. As long as no "Eviction Default" (as defined in Section 9 of this
Agreement) has occurred, AutoImmune agrees to forbear from
enforcing the Execution. Subject to the prior sentence, AutoImmune
will hold the Execution in escrow during the Contingent Occupancy
Period.
8. Antigenics shall vacate the Subleased Premises on or before the
last day of the Contingent Occupancy Period and shall leave the
same in the "yield up condition" (as defined in Section 5.1.9 of
the Overlease and incorporated by reference into the Sublease)
required of the Subtenant by the Sublease as of the expiration or
sooner termination of the Sublease term. Without limiting the
generality of the foregoing, Antigenics agrees to remove, or to
arrange for the removal of, all of its personal property from the
Subleased Premises on or before the last day of the Contingent
Occupancy Period. Antigenics also agrees to remove, at Antigenics'
sole cost and expense, on or before the last day of the Contingent
Occupancy Period, that certain Lab Irradiator currently located on
Level
-5-
<PAGE>
400 of the Subleased Premises (the "Irradiator") from the Subleased
Premises. Antigenics shall repair any damage to the Subleased
Premises caused by the removal of the Irradiator and any of its
personal property. Antigenics specifically acknowledges and agrees
that AutoImmune shall have no responsibility to remove the
Irradiator from the Subleased Premises.
9. Upon the occurrence of an Eviction Default as defined herein,
AutoImmune shall have the right to enforce the Execution
immediately and without further notice. The occurrence of any one
or more of the following events shall constitute an "Eviction
Default": (i) Antigenics fails to vacate the Subleased Premises on
or before September 30, 1998 in accordance with the provisions of
the Sublease and this Agreement; (ii) Antigenics fails to maintain
the Subleased Premises in the condition required of the Subtenant
under the Sublease; (iii) Antigenics fails to maintain the
insurance required of the Subtenant under the Sublease; or (iv)
Antigenics fails to abide by any of the provisions of this
Agreement.
10. In the event of a breach of this Agreement by a party, the
breaching party shall pay all of the non-breaching party's legal
fees and expenses incurred in enforcing the non-breaching party's
rights under this Agreement.
-6-
<PAGE>
11. Any notice or other communication given pursuant to the provisions
of this Agreement shall be deemed to have been given only if in
writing and, only if hand-delivered or mailed by overnight mail via
a nationally recognized overnight carrier that maintains receipts,
if to AutoImmune in care of AutoImmune Inc., 128 Spring Street,
Lexington, Massachusetts 02173, Attention: Heather Ellerkamp, and
if to Antigenics at 630 Fifth Avenue, Suite 2170, New York, New
York 10011, Attention: Garo Armen, with a copy to the Subleased
Premises, except that service of process of Antigenics in
connection with the Summary Process Action shall be only required
to be made at the Subleased Premises, and Antigenics agrees to
accept such service of process at the Subleased Premises.
12. Antigenics agrees that the $25,231.50 Security Deposit under the
Sublease shall be held by AutoImmune as a security deposit under
this Agreement (the "Security Deposit"). The Security Deposit shall
be held by AutoImmune in a non-interest bearing account, and shall
serve to partially secure Antigenics' obligations under this
Agreement. The Security Deposit may be applied, at AutoImmune's
sole discretion, to fulfill any of Antigenics' obligations under
this Agreement. In no event shall Antigenics have any right to
direct AutoImmune how to apply the
-7-
<PAGE>
Security Deposit. Provided there is not then any breach of any
undertaking of this Agreement by Antigenics, the Security Deposit
(to the extent the same has not been previously utilized by
AutoImmune as described herein) shall be returned to Antigenics
within fifteen (15) days of the last day of the occupancy of the
Subleased Premises by Antigenics.
13. The parties to this Agreement hereby release, remise and forever
discharge one another of and from all debts, demands, actions,
causes of action, suits, accounts, covenants, contracts,
agreements, damages and any and all claims, demands and liabilities
whatsoever of every name and nature, both at law and in equity,
arising out of or connected with or incidental to the Sublease and
the Subleased Premises, whether known or unknown, contingent or
uncontingent, from the beginning of the world to the date of this
Agreement. Antigenics also releases, remises and forever discharges
AutoImmune from all debts, demands, causes of action, suits,
accounts, covenants, contracts, agreements, damages and any and all
claims, demands and liabilities arising out of the institution by
AutoImmune of the Summary Process Action and any actions taken by
AutoImmune in connection therewith to the extent the same are
authorized by this Agreement. Notwithstanding the generality of the
-8-
<PAGE>
foregoing, AutoImmune does not release Antigenics from its
obligations pursuant to the Summary Process Action.
14. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
15. Notwithstanding the other terms and provisions of this Agreement,
Antigenics, by written notice given to AutoImmune prior to August
1, 1998, shall have the right to vacate the Subleased Premises in
its entirety on or before August 31, 1998 (the "Pre-September 1,
1998 Vacation"). In the event of a Pre-September 1, 1998 Vacation
by Antigenics, AutoImmune shall pay to Antigenics $33,414.85 (i.e.,
the Occupancy Payment for September of 1998) by September 20, 1998
so long as each of the following events have occurred: (i)
Antigenics is in full compliance with all its obligations under
this Agreement as of September 1, 1998, including, without
limitation, Antigenics' obligations to remove the Irradiator and
all of its personal property from the Subleased Premises and to
leave the Subleased Premises in the condition required by the
Sublease upon the expiration or sooner termination of the Sublease
term; and (ii) Antigenics provides notice to AutoImmune of the Pre-
September 1, 1998 Vacation on or before August 1, 1998.
-9-
<PAGE>
WITNESS the execution hereof as an instrument under seal as of the day and
year first above written.
AUTOIMMUNE INC.
By: /s/ Robert C. Bishop
----------------------
Robert C. Bishop, CEO
ANTIGENICS, LLC
By: /s/ Garo Armen
----------------------
Garo Armen, President
-10-
<PAGE>
EXHIBIT A
---------
Plan Showing Occupied Office on 600 Level
[Map Depicting Occupied Office on 600 Level]
<PAGE>
EXHIBIT B
---------
Bill of Sale for Office Furniture Purchased by AutoImmune Inc.
<PAGE>
EXHIBIT B
---------
BILL OF SALE
------------
ANTIGENICS, LLC, in consideration of the total sum of $27,942.00 to it paid
by AUTOIMMUNE INC., the receipt whereof is hereby acknowledged, does hereby
grant, bargain and sell to AUTOIMMUNE INC., its successors and assigns, the
items of personal property listed on Schedule B-1 attached hereto.
To have and to hold all and singular the personal property to the said
AUTOIMMUNE INC., its successors and assigns, to their own use, forever.
And ANTIGENICS, LLC, hereby covenants that it is the lawful owner of such
personal property; that such personal property is free from all encumbrances;
that it has the right to sell the same as aforesaid; and that it will warrant
and defend the same against the lawful claims and demands of all persons.
IN WITNESS WHEREOF, ANTIGENICS, LLC has executed this Bill of Sale on this
____ day of July, 1998.
ANTIGENICS, LLC
By: __________________________
Its
STATE OF ____________________ )
) SS
COUNTY OF _____________ )
On this ____ day of July 1998, before me appeared _______________________
me known, who being duly sworn, did depose and say that they are the___________
_________________________________ of ANTIGENICS, LLC, the limited liability
company named in and which executed the foregoing instrument, that said
instrument was signed by them on behalf of said limited liability company and
they acknowledged said instrument to be the free act and deed of said limited
liability company.
____________________________
Notary Public
Commission Expires: _________________
<PAGE>
[Office Equipment List]
<PAGE>
EXHIBIT C
---------
Agreement for Judgment
-15-
<PAGE>
EXHIBIT C
---------
COMMONWEALTH OF MASSACHUSETTS
MIDDLESEX, ss. CONCORD DISTRICT COURT
SUMMARY PROCESS
CIVIL ACTION NO.______
AUTOIMMUNE INC. )
)
)
Plaintiff, )
)
v. ) AGREEMENT FOR JUDGMENT
) ----------------------
ANTIGENICS, LLC )
)
Defendant. )
)
Plaintiff AutoImmune Inc., and defendant Antigenics, LLC hereby
stipulate and agree that: (a) Judgment for the plaintiff AutoImmune Inc. for
possession shall enter this day; (b) because neither party admits any fault, no
award of damages or costs shall be entered for either party; and (c) the parties
having waived all rights of appeal, execution shall issue forthwith.
AUTOIMMUNE INC. ANTIGENICS, LLC
By its Attorneys: By:
_____________________________ __________________________
Timothy M. Smith, Esq. (BBO#550397)
David L. Ferrera, Esq. (BBO#631183)
NUTTER, McCLENNEN & FISH, LLP
One International Place
Boston, MA 02110-2699
(617) 439-2000
Dated: ________, 1998 Dated: _________, 1998
<PAGE>
EXHIBIT 10.28
FOURTH AMENDMENT TO LEASE
-------------------------
This FOURTH AMENDMENT to Lease is executed as of July 17, 1998 and amends
that certain Lease between AutoImmune Inc. ("Tenant") and Ledgemont Realty Trust
u/d/t dated December 12, 1984 ("Landlord"), which Lease is dated December 3,
1992 (the "Original Lease") with respect to certain premises located on the 400
and 500 levels of Building B of One Ledgemont Center, Lexington, Massachusetts
(the "Original Premises"), as amended by the First Amendment to Lease dated as
of October 31, 1993 (the "First Amendment"), which added 8,508 square feet of
additional space on the 600 level of Building B to the Original Premises (the
"Building B Expansion Premises") and 2,694 square feet of additional space on
the 500 level of Building C to the Original Premises (the "Building C Expansion
Premises"), as amended by the Second Amendment to Lease dated as of February 1,
1996 (the "Second Amendment"), which added 8,088 square feet of additional space
on the 400 level of the Building B-Annex (the "Building B-Annex Expansion
Premises") and as amended by the Third Amendment to Lease dated as of October
23, 1996 (the "Third Amendment"), which added 8,800 square feet of additional
space in the building known as the Richards House (the "Richards House Expansion
Premises"). The Original Lease as amended by the First Amendment, the Second
Amendment and the Third Amendment is referred to herein as the "Lease".
BACKGROUND
----------
A. Tenant is currently the occupant of the Original Premises, the
Building B Expansion Premises, the Building C Expansion Premises and the
Building B-Annex Expansion Premises pursuant to the Lease. Tenant's rights to
the Richards House Expansion Premises were terminated by Tenant pursuant to the
terms of the Third Amendment.
B. Tenant desires to reduce the Premises to 11,682 square feet of space
on the terms set forth below.
C. Landlord and Tenant are entering into this Fourth Amendment to Lease
to set forth their respective understandings with respect to the reduction of
the Premises.
AGREEMENTS
In consideration of the mutual covenants set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant agree as follows:
1. The Premises leased by Tenant under the Lease shall be reduced as of
October 1, 1998 to contain only the Building B-Annex Expansion Premises
consisting of 8,088 square feet in Building B - Annex, the Building C Expansion
Premises consisting of 2,694 square feet in Building C and a portion of the
Original Premises consisting of 900 square feet in Building B, all as shown on
Exhibit A attached hereto. The foregoing space shall be
<PAGE>
referred to herein as the "Residual Premises". From and after October 1, 1998,
references in the Lease to the "Premises" shall be deemed to refer to the
"Residual Premises".
2. Tenant shall yield up the Original Premises other than the 900 square
feet thereof included in the Residual Premises and the Building B Expansion
Premises on October 1, 1998 in the condition required under the Lease. Tenant
shall leave the equipment described in Exhibit B hereto in the Premises when
Tenants yield up the Premises to Landlord.
3. From and after October 1, 1998 through December 2, 1999, Tenant shall
pay Annual Fixed Rent on the Residual Premises at the rate of $175,230 in
monthly installments of $14,602.50.
4. From and after October 1, 1998, Tenant's Percentage Share equal 8.889%
for Operating Expenses and 6.4064% for Real Estate Taxes.
5. In addition to the five (5) year and three (3) year Extension Terms
provided for in Section 12 of the First Amendment, Tenant shall have the option
to extend the Lease for one one (1) year Extension Term by unconditional notice
given at least 4 months prior to the end of the existing term, time being of the
essence to such exercise so long as at the time of such notice and at the
beginning of the Extension Term Tenant is not in default beyond the expiration
of all applicable notice and grace periods. The period for exercising Tenant's
five year, three-year or one-year option shall also be 4 months prior to the end
of the existing term. All references to the Term in the Lease shall mean the
Initial Term as it may be extended by an Extension Term. Tenant's notice
extending the term of the Lease, if any, shall set forth Tenant's choice of the
five-year, the three-year or the one-year Extension Term (Tenant only having the
option of electing any one of such Extension Terms). If Tenant elects the one-
year Extension Term, Annual Fixed Rent for the Premises during the one-year
Extension Term shall be $20 per rentable square foot.
6. Tenant acknowledges that Tenant shall have no further rights of first
offer or expansion rights under the Lease and that Tenant shall have no further
extension right under the Lease except for the option to extend the Term for one
Extension Term of either one, three or five years on the terms set forth herein
and in the First Amendment.
7. From and after October 1, 1998, Tenant shall be entitled to use 30
unreserved parking spaces in the same manner and degree as provided in the
Original Lease.
8. Capitalized terms used in this Fourth Amendment to Lease, but not
defined herein, shall have the meanings ascribed to them in the Lease.
9. Except as amended hereby, the Lease is ratified and confirmed.
-2-
<PAGE>
Executed as a sealed Massachusetts instrument as of the day first written
above.
LEDGEMONT REALTY TRUST
By: /s/ Robert L. Beal
----------------------------------
Trustee and not individually
AUTOIMMUNE INC.
By: /s/ Robert C. Bishop
----------------------------------
Name: Robert C. Bishop
Title: CEO
-3-
<PAGE>
Exhibit A - Residual Premises
[Map Depicting the Building B-Annex Residual Premises]
[Map Depicting the Building C Residual Premises]
[Map Depicting the Residual Premises of Building B]
<PAGE>
EXHIBIT B
LIST OF EQUIPMENT REMAINING AT 128 SPRING STREET - BUILDING B
Glass washer - Betterbuilt Model 3000
Amsco double door autoclave
Reimers Electra steam generator
Hubbell hot water booster
Nortec humidifiers NHB series (quantity 4)
6' Fume hoods Kewaunee Model SH-1006-MN (quantity 3)
6' Isotope fume hood Kewaunee Model SH-1076-MS
4' Fume hoods Kewaunee (quantity 2)
8' Fume hood
Walk in cold room
Walk in cold room and freezer
A/C units in tissue culture lab
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-82972, No. 333-4397, and No. 333-68309) of
AutoImmune Inc. of our report dated February 5, 1999 appearing on page F-2 of
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,801,000
<SECURITIES> 12,727,000
<RECEIVABLES> 77,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,734,000
<PP&E> 2,289,000
<DEPRECIATION> (1,751,000)
<TOTAL-ASSETS> 18,326,000
<CURRENT-LIABILITIES> 1,409,000
<BONDS> 0
0
0
<COMMON> 117,717,000
<OTHER-SE> (100,800,000)
<TOTAL-LIABILITY-AND-EQUITY> 18,326,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 14,522,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,185,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.80)
</TABLE>
